UPDATE 2-S.Africa's Cipla Medpro CEO quits, shares rise

Mon Oct 8, 2012 11:46am EDT

Related Topics

* CEO and founder quits

* Says to take action against company

* Shares up over 5 pct (Adds analyst comment)

By Tiisetso Motsoeneng

JOHANNESBURG, Oct 8 (Reuters) - South Africa's Cipla Medpro said on Monday its chief executive had quit, ending months of speculation about his suspension and raising questions about the generic drug maker's tie-up with Cipla India .

South Africa's No.3 drug maker said in a statement that Jerome Smith had stepped down from the company he founded, after being suspended in August pending an investigation into charges against him.

Smith had been due to appear at a disciplinary hearing on Monday but resigned first, the company said. Shares of Cipla Medpro, which have been under pressure since Smith's suspension, rose nearly 6 percent.

"I have however been driven to take this decision by the board's decision to suspend me, to forbid me from coming into the premises and to thereafter and without any proper foundation accuse me of a list of misdeeds," Smith said in a statement.

Smith also said he would take legal action against the company, but did not give any details.

The hearing was to address more than 20 charges against Smith, including potential "gross misconduct" for approving bonuses and pay rises for himself that were not recommended by the board, the company said.

The charges also allege Smith may have taken loans or other financial assistance from the company without proper approval, and had 45 people on the company's books who were not actual employees and were paid on his behalf.

"More than anything, the latest development removes a lot of uncertainty around the company," said Mathew Menezes, an analyst at Avior Research in Johannesburg.

But Smith's departure also raises concerns about the future of the company's lucrative supply agreement with Indian generic drug giant Cipla India.

Cipla India supplies the bulk of Cipla Medpro's drugs via an agreement spearheaded by Smith, who was mentored by the Indian company's senior executives such as its current MD and chairman Yusuf Hamied.

"What's going to happen to the supply agreement? What if Jerome Smith starts his own business? Will Cipla follow him? It's a risk that investors have to take before buying shares in this company," said one analyst who declined to be identified because he is not allowed to speak to the media.

Shares in Cipla Medpro, which is valued at $350 million, rallied 5.6 percent to 7.14 rand. Shares are still down around 15 percent since Smith's suspension. (Editing by David Dolan and David Cowell)

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