* Shares in Adcock up 1.36, well below offer price
* CFR offer at about 14 pct premium
* Deal could hand key player in South Africa's healthcare
reform to foreigner
(Adds comments by analyst, director)
By Tiisetso Motsoeneng
JOHANNESBURG, July 3 Chile's CFR Pharmaceuticals
is planning a $1.3 billion bid for Adcock Ingram
, a deal that could bring foreign owners to a key player
in government plans to overhaul South Africa's healthcare
In a rare Chile-South Africa tie-up proposed on Wednesday,
the companies said CFR would use cash and shares to buy Adcock's
175 million shares at 73.51 rand each, a near 14 percent premium
to Adcock's closing price on Tuesday.
The non-binding offer would value South Africa's
second-biggest drugs maker at 12.86 billion rand ($1.30
billion), according to Thomson Reuters' calculations.
The ratio of cash and shares in the proposal was not
disclosed and investors' reaction was largely muted.
Shares in Adcock closed up 1.36 percent to 65.38 rand, well
below the offer price and reflecting investor uncertainty and
the lack of detail about the stock component.
"There's some uncertainty around the completion of the deal
and it is also difficult to assess the final value of the offer
if investors don't have the ratio of shares to cash," said
Andrew Joannou, a portfolio manager at Afena Capital.
South Africa has a history of sinking cross-border deals if
they are seen to threaten government initiatives aimed at
raising living standards among the country's black majority.
Adcock's biggest shareholder, the Public Investment
Corporation -- a state-run pension fund -- declined to comment
until CFR makes a formal offer.
But a source familiar with the government's thinking on the
matter said the PIC was seen using its nearly 14 percent stake
to try to rebuff the offer.
Last year, the government rejected South Korea's KT Corp
$385 million offer for a stake in Telkom,
saying the telecoms operator was at the heart of its ambitious
broadband roll out for millions of South Africans.
The announcement ends months of speculation about the
potential bidders for Adcock, whose board spurned a bid by the
South African industrial group Bidvest earlier this
Adcock's independent director said CFR's potential offer
price was good enough to exclusively engage the Chilean firm
about the potential for a firm offer.
"We haven't passed judgment on the valuation but it is
clearly at a level which justifies exclusivity," Andrew Thompson
The CFR offer is about 4 percent below Adcock's "intrinsic
value", according to Thomson Reuters StarMine, which pegged the
South African company stock price at 76.50 rand based on its
most likely earnings growth trajectory over the next five years.
For Adcock, which has underperformed rivals both
operationally and in stock market terms in recent years, the
deal would give it a substantial presence in Latin America,
where its closest domestic rival Aspen Pharmacare is
slowly building a presence.
The deal would also open the doors for the Chilean company
to tap into Africa's expanding markets, where Adcock sells
over-the-counter drugs and antiretrovirals treatments for
If the deal goes through, the combined company would have
annual revenue of about $1.3 billion with exposure to 2 billion
patients in more than 23 countries.
CFR, which plans to fund the cash component of the deal in
cash and debt, said it would seek a secondary listing on the
Johannesburg Stock Exchange if the deal was implemented.
($1 = 9.9017 South African rand)
(Additional reporting by Helen Nyambura-Mwaura; Editing by Ed
Stoddard and David Cowell)