Little hope for Joffe’s Adcock move
A PROPOSAL by Brian Joffe’s Bidvest to buy out Adcock Ingram’s BEE partners and list a special-purpose vehicle has triggered an automatic offer to all minority shareholders at R52 per share — but analysts say there’s practically no chance of widespread shareholder support for the deal.
In effect, it is a technicality that Bidvest’s offer — at just a 13% premium to Adcock’s share price over the past month— will be made across the board, since Bidvest owns 34.5% of the pharmaceutical company and has to make an offer once it crosses the 35% threshold by picking up the BEE scheme’s shares.
A new special-purpose vehicle will be created to replace the failed BEE share scheme and all existing Adcock shareholders — including Bidvest — will together have to sell 15% to 30% for the shareholding to be established. This means Bidvest’s shareholding could then fall back under 35%.
In any event, according to Jean Pierre Verster, analyst at 36ONE Asset Management, Adcock’s wider shareholder base is unlikely to be tempted by Joffe’s carrot of R52 per share.
“I don’t expect there will be any meaningful support. This is simply a result of the existing BEE scheme not being successful.”
Bidvest’s proposal to Blue Falcon, which owns 10.59% of Adcock, and the Bophelo Trust, which owns 3.6%, was accepted because these shareholders had not seen much value realised through their stake — but it still allows Bidvest to make a move at a relatively low price.
Last year, acting with the support of the Public Investment Corporation, Joffe staged an audacious move to block a plan by Chile’s CFR Pharmaceuticals to buy out Adcock, picking up just over a third of Adcock for about R70 a share.
Soon afterwards, global pharma giant Abbott made a move for Kalo Pharma Internacional, the holding company that owned 73% of CFR.
This meant that Adcock shareholders may have got as much as R90 per share if CFR had picked up the South African company. So Joffe’s offer of R52 per share isn’t exactly enticing.
Imara’s Mark Saner and Stephen Meintjes said in a research note that they also expected most shareholders to turn down the offer.
Public Investment Corporation CEO Daniel Matjila gave an ambiguous response to Bidvest’s offer, saying the corporation “continues to believe that the investment is strategic and that there is value to be unlocked going forward”.
He added: “Adcock’s current financial and market position as well as the pertinent details of the Bidvest offer will inform our decision.”
Verster said: “Bidvest is intent on increasing its share and wants to buy out Adcock com- pletely.
“The first signs of a turnaround are seen in Adcock’s latest results — some stabilisation in scheduled medicines, some pressure still on over-thecounter medicines and some loss-making in its offshore operations — but the deterioration . . . has reached a turnaround.
“This is why Bidvest is comfortable increasing its stake. You might say the turnaround could have happened quicker if Joffe had been motivated. He overpaid for the first stake.”
Analysts say Joffe won’t want to let Adcock’s share price run too far before making further offers.
Investec Asset Management portfolio manager John Thompson said there was probably no Adcock shareholder more disgruntled than Joffe — but it was a small acquisition and the situation was far from desperate.
“Bidvest will increase its control, which will benefit Adcock — Bidvest has stated it would like to engage with other for-
Bidvest will increase its control, which will benefit Adcock
eign pharmaceutical companies in joint ventures or in manufacturing contracts,” Verster said.
This could help Adcock tremendously, as it could then cross-licence Adcock products into foreign countries, while also paving the way for foreign medicines to be marketed in South Africa, Verster said.
“Adcock has a market cap of R9-billion, while Bidvest has a market cap of R108-billion.
“That means Adcock is less than 9% of that market cap, and Bidvest owns just more than a third of that, so it has a 4% exposure to Adcock. It’s not a make-or-break deal,” Verster said.