Bidvest changes tack in Adcock battle
More than a year after starting a battle to gain c ont r ol of wheezing pharmaceutical company Adcock Ingram, Bidvest announced earlier this month that it was changing tack in its effort to take up the reins.
Instead of trying to buy out the Public Investment Corporation (PIC), which is the second biggest shareholder of the pharmaceutical company, it was now trying to convince the state’s investment house to pool a major chunk of its shareholding.
The Sens announcement came just weeks after Adcock announced its intention to unwind its current BEE holding by May. Bidvest would buy the 13% current holding at R52 a share, and a new – bigger – BEE structure would be created. The finer details of the plan needed to be hashed out, but essentially shareholders would foot the bill for the new holding which will be between 15% and 30%. BEE partners Blue Falcon, Bophelo and CIH would “contribute meaningful capital to the structure”.
The upside of the new improved BEE structure is clear: it opens the way to future lucrative state contracts, including the coveted nod to supply antiretroviral drugs to state institutions.
Bidvest’s plan to pool shares with the PIC seems likely to go through: analysts have anticipated that the company would gain ultimate control of Adcock since Brian Joffe first made a play for it at the end of 2013.
Bidvest owns around 34.5% of Adcock, SA’s second-biggest drug maker after Aspen. The PIC owns 22.4%. Adcock shares were trading at R52.48 at the time of going to press.
The new plan is for the PIC and Bidvest to each contribute 41m shares – 24% stakes – to the pool, and for the two entities to vote as a combined block.
On paper it looks like a great deal for the PIC, which would in theory sit back and let Bidvest call the shots for the company. Sasha Naryshkine, director at investment house Vestact, says it looks like the two entities are “on the same page” and that they will both likely vote their non-pooled shares the same way as the pool agreement.
The new plan was put into action
after the PIC spurned Bidvest’s latest offer to buy its 48m shares at R52 a share last month. Wayne McCurrie, head of Momentum Wealth Portfolio Management, says the plan will give Bidvest more leverage over Adcock without having to pay any kind of control premium.
Bidvest is unlikely to try to squeeze the PIC out of the company: it is such a big shareholder in so many companies there is “no point in annoying them”. “It’s worth keeping them on your side,” says McCurrie.
The PIC’s stake in Adcock is a fraction of the investment the stateowned institution manages for the Government Employees Pension Fund and the Unemployment Insurance Fund, the biggest funds in the country with together over a trillion rand in assets.
Handing the reins over to Bidvest, one of South Africa’s most respected managers of shareholder capital, is a solid bet for the PIC. With completely diverse operations across Africa, Asia, Europe and Australia, Bidvest has over 20 years grown to be the second biggest JSE-listed company by revenue.
Since 1990 Bidvest’s share price has increased more than 140-fold as founder and group CEO Brian Joffe juggernauted a r ound t he pl a net s natching up companies in industries as diverse as banking, freight and catering.
Despite the fact that Adcock would amount to just 2% of Bidvest’s market cap, Joffe has not taken his eyes off the Adcock prize since 2013. When Chile’s CFR Pharmaceuticals came sniffing around Adcock’s door at the end of that year, Joffe moved fast to block it, increasing his shareholding to 34.5%, with BEE partner Community Investment Holdings paying R70 a share. The PIC also dug in its heels and rejected the Santiago-based company’s bid which would have meant swapping its Adcock shares for those in CFR. By January last year CFR had packed up and left.
But after t he highly-publicised boardroom battle, spectators – and Joffe – were left open-mouthed when Adcock’s interim results came out a long way off “publicly available information”. In its 2014 annual report, Bidvest reported that the massive company’s basic earnings per share had fallen by 4.2% to 14.62 cents, largely because of a R1.1tr impairment of the investment in Adcock.
While Joffe, now chairman of the drug maker, was understandably furious, he made it clear that he wasn’t walking away f rom t he embattled pharmaceutical company that competes in a market dominated by the likes of multinational giants Aspen, Pfizer and GlaxoSmithKline.
So would he take on the company again given the benefit of hindsight? McCurrie says there is no doubt: “I can promise you if Bidvest didn’t think there was upside, it wouldn’t be making the offer.”
Manufacturing pharmaceuticals is not an industry Bidvest has any experience in, but it has the logistics and the capital to catapult it into serious value territory. And under Bidvest-appointed CEO Kevin Wakeford, the company is already starting to show a significant t urnaround. The interim results to December showed prof it after ta x increased an astonishing 38% to R145m.
It’s a double-edged sword for Bidvest though since this success means ordinary shareholders are increasingly unlikely to sell out – certainly until they are offered significantly more than R52.