PIC holds all the cards in Adcock-CFR deal

But some fund managers reject Bidvest’s offer

SHAREHOLDERS should vote in favour of the Chileans’ offer for Adcock Ingram rather than an alternative offer from Brian Joffe’s Bidvest, according to two consultancies that advise institutional investors.

Institutional Shareholder Services (ISS) and Glass Lewis, which both provide analysis and governance research for investors, both say Adcock’s investors should accept the offer from CFR, which works out to about R73/share.

Bidvest this week formally tabled its offer for 34.5% of Adcock Ingram for R70/share.

ISS’s and Glass Lewis’s advice might ultimately be meaningless as the state-owned Public Investment Corporation (PIC) remains the swing vote, considering it owns 18.9% of the pharmaceutical company.

The PIC said previously that it would not support the deal in its current form— but that was before a binding offer was made.

The PIC has not elaborated, though CEO Elias Masilela said this week that his entity was not opposed to foreign investment, and considers each deal on its own merits.

CFR needs the support of 75% of Adcock shareholders. With Bidvest owning just less than 7% and set to veto the deal, the PIC’s position is set to determine whether the deal stands or falls.

The PIC has stakes in both Bidvest and Adcock, but holds eight times more value in Bidvest (R16-billion) than in Adcock (R2-billion).

This has spurred concern that the PIC may deem it advantageous to support Bidvest’s alternative offer of R70/share, which would allow Bidvest to get Adcock “on the cheap”.

But an article on Bloomberg, quoting an unnamed source within the PIC, said the country’s largest fund manager did know what it wanted: R74 in cash.

CFR’s executive president, Daniel Salvadori, said earlier this week that “we believe we can convince [the PIC] that foreign ownership is good for South Africa … we will create a sustainable local pharmaceutical industry, which you can’t do if you don’t bring in product and create export markets”.

Despite the emergence of Bidvest’s offer, Adcock reiterated this week that its board believed CFR’s offer was still the most attractive opportunity for Adcock Ingram shareholders.

Joffe said the PIC had acted on its own, and there was “no buddy-buddy” relationship between the two, pointing out that the PIC had voted against Bidvest in an earlier deal when Joffe’s company tried to buy Mvelaserve.

But questions remain over why the PIC was prepared to support Bidvest’s first offer and Actis’ offer in the first place.

Cy Jacobs, co-founder of 36One Asset Management, said it was opposed to Joffe’s “disruptive offer”.

“All it’s really doing is putting a spoke in the CFR deal because if Joffe does get enough support, he stops the CFR deal and it doesn’t look like he plans to make an offer for R70 for the rest of the company at this stage. And that’s not a great deal for Adcock, Adcock staff or shareholders ... we’re just hoping the PIC sees the Joffe offer for what it is, because ultimately they are the swing vote.”

“First prize is for the PIC to vote for the CFR deal, second would be to refrain from voting. All the fund managers I’ve spoken to are not accepting the Bidvest offer.”

36One owns 2.2% of Adcock.