5 Min Read
(Adds analyst, CFR CEO Comment)
By David Dolan
JOHANNESBURG, Feb 7 (Reuters) - Chile's CFR Pharmaceuticals dropped a $1.2 billion bid for South Africa's Adcock Ingram on Friday, paving the way for Adcock's largest shareholder to overhaul the underperforming drugmaker.
CFR's defeat was widely expected after South Africa's Bidvest Group lifted its Adcock stake to over 34 percent last month, giving it enough to vote down the deal.
Bidvest Chief Executive Brian Joffe has been trying to take control of Adcock for nearly a year, seeing a chance to turn around another underperformer and wanting to add its portfolio of painkillers to his sprawling company that spans shipping to mop sales.
Joffe has a long track record of snapping up laggards and turning them around by focusing on cash flow, capital allocation and shareholder returns.
Adcock has suffered from inefficient distribution and an over-reliance on its home market. Bidvest has vast freight operations, which could be used to push Adcock painkillers and other medicines into the rest of Africa.
"He's now in a position to start exerting his influence," said Nic Norman-Smith, chief investment officer at Lentus Asset Management in Johannesburg, about Joffe.
"He's generally proved that he drives shareholder returns in the businesses that he's owned."
Adcock and CFR said in a joint statement on Friday that "there is no prospect" the CFR offer could now be approved by shareholders owning 75 percent of the company, as required.
It was not immediately clear whether Joffe would look to raise his stake, although analysts have said he was likely to do so, given that he had previously bid for a majority stake.
The Bidvest chief executive was not immediately available for comment.
Last month he said he was looking to have "strategic input" into the company, but he declined to comment further.
After acquiring a company, Joffe typically leverages Bidvest's vast customer base and ensures that firms sell to other group companies. Some group offices are cleaned by his cleaning unit and furnished by the furniture arm.
After Joffe first tried, and failed, to buy control of Adcock in March last year, Santiago-based CFR stepped in with its own offer, looking to build an emerging markets pharmaceuticals powerhouse by adding Africa to its existing operations in Latin America and Asia.
But its higher cash-and-shares bid was effectively blocked when Bidvest raised its stake to 34.5 percent at the end of last month - following a one-day buying spree that saw a record 39 million Adcock shares changing hands.
CFR Chief Executive Alejandro Weinstein said on Friday Adcock's recent profit warning made it a less attractive prospect. Adcock said last month profits for the six months to end-March were likely to fall by at least 20 percent, year-on-year.
"CFR is a disciplined buyer with a strategic focus," Weinstein said in a statement. "The pharmaceutical industry in emerging markets is full of opportunities and will continue to grow at double digit-rates, and we're already focused on analysing new companies."
The deal had raised concerns that Pretoria was less than welcoming to foreign takeovers. Weinstein had previously accused the government pension fund of protectionism for opposing its offer.
The state-owned Public Investment Corporation (PIC), which owns more than 20 percent of Adcock and was its top shareholder before Bidvest raised its stake, had said it did not want to swap shares in Adcock for those in CFR.
The PIC is also the top shareholder in Bidvest, leading to some speculation the fund was working with Joffe to thwart CFR, something Joffe has denied.
Shares in Adcock, which tumbled at the end of January after the announcement that Bidvest had acquired enough shares to block CFR, finished flat at 59.93 rand on Friday - well below Bidvest's cash offer of 70 rand in their one-day buying spree.
CFR's offer had valued Adcock at 74.50 rand.
Shares of Bidvest finished up 1.8 percent at 244 rand, while CFR shares were down 1.5 percent in Santiago. ($1=11.0078 South African rand) (Additional reporting by Alexandra Ulmer in Santiago; Editing by Pravin Char)