Adcock’s shaky take on investor rights

JUST when you think companies are getting the hang of this shareholder democracy lark, along comes a board from the dark ages, like that of Adcock Ingram.

Adcock, whose insignia you’ll see on every bottle of Panado, Bioplus, Compral or Corenza-C, is a thumping South African success story.

It was started by the grandfather of ponzi king Barry Tannenbaum, from a small Krugersdorp pharmacy called EJ Adcocks, which opened in 1890 to sell potions to miners on the reef.

It grew to become South Africa’s biggest pharmaceutical group until it fell under the suffocating control of Nick Dennis’ Tiger Brands. Acquisitions were vetoed, expansion ideas killed. It was no surprise when Adcock was left standing by Aspen.

Since Adcock was unbundled from Tiger Brands in 2008, it has floundered, performing about as well as a National Empowerment Fund official with an open chequebook.

So in March, along came Bidvest, offering R63/share to buy 60% of Adcock — but giving no guarantees they’d retain Jonathan Louw’s belowpar management. Adcock refused to put the offer to shareholders.

Then in July, a Chilean firm called CFR pitched up and offered R73.51/share. Importantly, the Chileans didn’t have their own people on the ground, which suggested CFR would keep Adcock’s management. As you can imagine, Adcock’s “independent board” liked that offer, so entered “exclusive talks” with CFR.

Now this week, Bloomberg reported that private equity company Actis put in a rival offer a few weeks ago of R70/share — the drawcard being that 80% of the price would be paid in cash. Yet, Adcock hadn’t breathed a word of this new bid to its shareholders.

On Thursday after the news broke, Adcock put out a statement saying prissily that it “noted recent speculation”— as if the gossip mags were speculating what the human resources department wore to the beach. While Adcock did confirm it had got “further unsolicited proposals”, it said none of these offers were “more favourable” than CFR’s.

It was a lame attempt to justify not taking shareholders into its confidence. Adcock sniffed that it “does not intend to publish the details of every proposal it receives”, as if hundreds of offers to buy the drug company arrived in the post every day.

Surely, as Bernard Swanepoel, chairman of gold miner Village Main, argued eloquently in these pages, Adcock’s board should step back and put all offers to shareholders “and let them decide for themselves”?

“Sadly, it’s not likely because man- agers and boards don’t think they work for shareholders — instead they believe they need to think for them,” Swanepoel said.

He labelled this as “arrogant and paternalistic”, a system to protect underperforming management — not shareholders.

So how is it possible that Adcock’s “independent board”, in their infinite wisdom, decided the Actis offer is worse for shareholders than CFR’s?

CFR’s offer, at the time it was announced, was R73.51/share — but given that it was part cash, and part shares in the Chilean company, it was a moving target.

This might seem more generous than Actis’ offer of R70/share, but Adcock has not deigned to disclose what part of CFR’s offer is in cash, and what percentage is in shares.

This is pretty crucial considering that since the offer was made, CFR’s share price has fallen from 115 Chilean pesos to 108 pesos. Also, a Chilean peso is now worth slightly less against the rand than on July 3, when the offer was made: then, 1000 pesos would get you R19.90 — now you’ll get R19.50 for that.

There’s every chance that if the board did the democratic thing, some investors might opt for Actis over CFR. The Public Investment Corporation (PIC), for one, wants Adcock to remain listed — which it seems it would in some form under Actis’ offer. Equally, asset manager Oasis, which owns 2.3%, says it won’t support CFR’s bid because it doesn’t want shares in a Chilean company that has lower profit margins, a lower return on equity and more debt than Adcock.

The thing is, CFR’s offer might actually be a whole lot more compelling. The price looks rich enough, and there’s an opportunity for Adcock to expand internationally.

Of course, until Adcock’s board decides it wants to be transparent with the people who actually own their company, the terms of these offers are just conjecture.

Until then, who can say if CFR’s offer is really first prize, or whether Adcock’s board is just protecting an underperforming management team, rather than looking out for shareholders.