Adcock suitor hits out at PIC
Chilean boss jets in to probe blocked deal
ALEJANDRO Weinstein, the CEO of Chile’s largest pharmaceutical company, CFR, has hit out at institutions blocking his company’s ambitious $1.2-billion takeover of Adcock Ingram.
Weinstein is set to jet into South Africa tomorrow to get to the bottom of the matter, after the Public Investment Corporation (PIC), which holds 18.6% of Adcock’s shares, said this week it would not support the deal.
Weinstein, in Miami on Friday en route to South Africa, said he was acutely shocked when he heard the news “because I thought from a financial and economic perspective, [for] all stakeholders [including] the company and the country, there is no other offer like what we are proposing.
“I’m really surprised that in a country which is, like all emerging markets, looking for investment and confidence . . . we’re not being welcomed with a big hug in the country.”
Weinstein said Adcock “needs a turnaround and there are only two alternatives — to be sold as a whole or to financial buyers who will put this company as part of a portfolio”.
The PIC’s statement this week appeared to effectively torpedo the deal, which needs 75% of shareholders to agree. Though it is still technically possible the deal could go ahead without the PIC’s support, the odds of other smaller shareholders like Oasis vetoing the deal suggest it would collapse.
Without elaborating, PIC CEO Elias Masilela said this week the state-owned asset manager had decided it was “not in the best interest of our shareholding to support the CFR offer in its current form”.
This was a shock as analysts widely expected the deal to go ahead. It is understood, however, that one issue deterring the PIC from supporting the offer is that it has only put forward a ‘‘non-binding” offer. Yet, the catch-22 is that CFR would prefer the PIC’s support before putting forward a binding offer.
The decision is all the more mysterious because Weinstein has already held three meetings with the PIC, while Adcock has held many meetings with government ministries who are understood to have been widely supportive of the deal.
“Of course, such a big investment for CFR, for South Africa . . . it’s not easy for us to do it against the will of the PIC,” said Weinstein, the third generation to run his family business.
While the PIC gave no reasons, the dominant speculation was that it was either trying to negotiate a better price, or was simply adamant that Adcock Ingram remain in local hands — more of a political than an investment consideration.
One of the PIC’s rumoured concerns was that Adcock’s new head
We’re not being welcomed with a big hug in the country
office would be moved to Chile, while the South African government remained a big spender on pharmaceuticals.
While Weinstein does believe in a single head office, he told Business Times the plan was to have different CEOs for Africa, America, India and Southeast Asia. “Each one with autonomy but respecting the cross synergies. South Africans will not report to Chileans. I hate that.”
For prospective South African bidders for Adcock, however, the PIC’s decision is good news.
Bidvest owns 2.5% of Adcock and its own takeover proposal for Adcock was thwarted by the board earlier this year.
This week, Bidvest CEO Brian Joffe told Business Times that he was adopting a wait-and-see attitude with regard to CFR — which suggests Bidvest hasn’t abandoned thoughts of a takeover just yet.
Said Joffe: “The question to ask is: would you ordinarily have invested in CFR? If the answer is no, then why the transaction?”
Joffe said another challenge was that CFR was a family-controlled company. “Why would an institution like the PIC want to give control to an individual family or man? And there could be the issues around transfer pricing. This is controlled by Chile: where would these guys want to make most of the money? Certainly not South Africa.”
Should CFR’s deal be scrapped, it would be a big loss in terms of foreign direct investment. It would be the largest single offshore investment in South Africa since Walmart bought Massmart three years ago, and would bring in $1.3billion — between $600-million and $750-million in cash.
Adcock is still supportive of CFR’s deal. Chairman Khotso Mokhele said the board believed combining with CFR was a “unique value proposition” that would be “in the best interest of all Adcock Ingram shareholders and other stakeholders, as well as SA at large”. He said Adcock would continue to engage with the PIC.
36One Asset Management analyst Jean Pierre Verster said the PIC had a fiduciary duty to pensioners, not to political bosses, and should make the right economic decision. Verster said the tone of PIC’s statement suggested it was simply a negotiating tactic.
“There’s a good chance they can make this happen or not. Anyone in this position would flex their muscles and try to show their power.
“The synergies CFR are offering are very compelling. I don’t think Bidvest or a private equity player could come anywhere close.
“If the PIC does not support a firm offer, in the absence of any superior proposal my view is that they would be short-changing the pensioners whose money they manage. They could open themselves up to a class action because of the fiduciary duties of trustees of pension funds,” he said.