S Africa’s Bidvest to raise stake in drugmaker Adcock Ingram to 60%

Diversified South African conglomerate Bidvest Group Ltd has offered to significantly raise its stake in Adcock Ingram Holdings Ltd from 2.4 per cent to 60 per cent for approximately 6.2 billion rand ($670 million), thereby gaining substantial control of the country's second-largest pharmaceutical company.

Johannesburg-based Adcock Ingram Holdings Limited is a pharmaceutical company well known for its painkiller Panado. It offers a range of generics and prescription medicines across various therapeutic classes and is also engaged in healthcare business. 

Bidvest intends to fund the purchase through its own sources and said that it would make a concerted effort to retain Adcock's management team.

It is expected that the Bidvest acquisition will boost Adcock's business.

According to analysts, the purchase is in line with Bidvest's strategy of buying underperforming assets at their lowest ebb.

In a cash-and-stock deal, Bidvest has offered 65 rand per Adcock share for half of the stake and one Bidvest share for every four Adcock shares, for the remaining half stake.

The average offer price, based on the Wednesday's closing price of the shares, works out to 61.92 rand per Adcock share, representing about 9 per cent premium.

Further to the news, shares in Adcock surged 9 per cent to 61.40 rand, giving it a market cap of 10.7 billion rand, while Bidvest stock dropped 2.2 per cent to 237.13 rand yesterday in Johannesburg.

Some analysts consider the offer price reasonable while some others think it is too low, saying that and it should be around 85 rand a share to attract shareholder interest.

Johannesburg-based Bidvest is a global services, distribution and trading company. It is the largest foodservices business outside North America. The group is engaged in freight management, banking, outsourcing, industrial and commercial products and services, printing, packaging, car sales, travel and other businesses.

The company is listed on the Johannesburg Stock Exchange and has over 105,000 employees in four continents.

Most of Bidvest's revenues are earned outside South Africa, while Adcock has most of its sales in South Africa.

In January, Adcock closed its acquisition of Goa-based Indian pharmaceutical company Cosme Farma Laboratories for 745 million rand, as part of its growth strategy to expand business in new territories and emerging markets. (See: South Africa's Adcock Ingram to buy Cosme Farma drug business for Rs480 crore)

Adcock has a 10-per cent market share in the private sector, and about over 3100 employees.  Its acquisition of of Cosme Farma has added anothe 1,000 to its payrolls.

For the year ended September 2012, the company reported a 3 per cent increase in revenue at 4.6 billion rand over the previous year. However, its operating profit fell 19 per cent to 869 million and headline earnings per share dropped 9 per cent to 422.4 cents as profit on prescription medicines declined and input costs increased.