Baxter ‘poison pill’ for Bidvest’s Joffe

JUST when you thought the Bidvest on-off bid for Adcock Ingram was definitely off, the latest news — whispers really — is that matters are stirring at deep levels in faroff places.

A reliable source says that a poison pill does indeed exist for any potential buyer of Adcock Ingram. It sits in that section of Adcock’s business described in its accounts as “hospital” and relates to the provision by Baxter Healthcare, a Swissbased pharmaceutical company, of a range of materials to Adcock. When Adcock was listed after being separated from what some describe as the Barlow’s Museum, the supply agreement was listed in the pre-listing statement.

Adcock’s attitude throughout this short saga has been that Bidvest should have done its homework. The supply agreement was there for all to see. But what is not so clear is that the agreement provides Baxter with the right to approve any change of control in Adcock Ingram, whether by Bidvest or by anyone. In that sense, it is a poison pill.

Adcock’s attitude to the Bidvest offer is that it has lapsed by virtue of a time clause inserted by Bidvest, and that insufficient information was provided by Bidvest in any event. So, is Bidvest talking to Baxter? No one is saying. When I placed a call to Baxter’s head office I was met with much mumbling and a promise that I would be contacted within two hours. It has been a long two hours.

Is Adcock talking to Baxter? No one is saying. So far, then, this is a zero chat game but something is going to bubble up to the surface pretty soon.

Baxter’s contribution to Adcock is important. According to my information, it contributes 25% to the group’s revenue and about 17% to profits before centralised costs are brought to

account. If this is so, it makes it all the more difficult for a genuine buyer to determine the effect of Baxter’s contribution on the business.

In that case, and presuming Bidvest CEO Brian Joffe is serious about wanting to achieve control over Adcock, the only thing that would surprise me right now is to learn that he is not somewhere in Europe talking to the senior Baxter executives. It was Baxter back in 2008 which decided to exercise its call option over the supply arrangement.

The sides could not agree and the matter was scheduled to go to arbitration in February 2011. Then something happened which saw Baxter electing not to proceed with the exercise of the call option.

The current supply arrangements remain in place until 2023.

In the absence of concrete information to the contrary, I am presuming that the call option remains alive. If so, it hangs over any attempt to change ownership control of this company until a deal is finally worked out.

I have drawn a short straw in my attempts to discover whether Adcock and Baxter are talking.

In the absence of hard information, it seems unusual that the Adcock board has chosen not to take shareholders into its confidence.

The company’s performance in recent years has not been inspiring and it may be that shareholders are reaching the point at which they may feel safer with Mr Joffe at the tiller than the current team.

I can envisage a situation in which Bidvest and Baxter decide to share control of Adcock Ingram for their own benefit and that of shareholders.