Bid­vest changes tack in Ad­cock battle

Finweek English Edition - - INSIDE - BY TINA WEAVIND

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.



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