UPDATE 3-S.Africa's Adcock Ingram scraps $264 mln CMSA bid
* Has cash to make acquisitions in S.Africa, eyeing W.Africa
* Scraps deal after threat over supply agreement
* Adcock under pressure to compete with Aspen in Africa
* H1 headline EPS up 18 pct
* Adcock stock 2 pct, CMSA down 3.5 pct;
(Adds analyst comments, details)
By Tiisetso Motsoeneng
JOHANNESBURG, June 2 (Reuters) - South Africa's No.2 drug maker, Adcock Ingram (AIPJ.J), scrapped its plan to buy rival Cipla Medpro SA (CMSA) (CMPJ.J) on Tuesday after CMSA's generic drug supplier threatened to cancel a vital supply agreement.
Adcock Ingram had said in April it planned to offer 2.1 billion rand ($263.8 million) for CMSA to boost its share of the fast-growing generic medicine market and to compete more effectively with larger peer Aspen Pharmacare (APNJ.J). [ID:nL6981515]
Adcock needed a confirmation from CMSA's Indian drug supplier that the marketing tie-up it has with CMSA would continue if the deal was implemented.
However, CMSA's drug supplier, Bombay-based Cipla Limited (CIPL.BO), opposed the deal and threatened to terminate the supply agreement.
CMSA has a 20-year arrangement, signed in 2005, to sell products developed by Cipla India in South Africa. Cipla India holds no shares in CMSA.
"Adcock was looking to buy into a portfolio of drugs and a pipeline of potential drugs. The research and development benefits of that agreement with Cipla India would have been crucial," said Peter Breitenbach, a healthcare analyst at Frost & Sullivan.
Shares in CMSA fell 3.36 percent to 3.45 rand by 1006 GMT while Adcock Ingram gave up 2.18 percent to 42.70 rand, underperforming the wider All Share index, which was down 0.3 percent.
"The fact that there appeared to be some ... I'd call it almost openly hostile responses from the Indian partner with respect to the business in South Africa... has put us in an untenable position," Adcock CEO Jonathan Louw said in a phone interview.
Louw told Reuters the company was under no pressure to make acquisitions but said it had cash for purchases in South Africa and the rest of the continent.
Adcock, which recently established a sales office in Kenya -- which would serve as hub for the firm's expansion into East Africa -- would look to increase its presence in West Africa, Louw said.
Analysts says Adcock, which was spun off from consumer goods firm Tiger Brands (TBSJ.J) in 2007, needs to compete more aggressively with Aspen Pharmacare, Africa's biggest generic drug maker.
GlaxoSmithKline (GSK.L) agreed last month to take a 16 percent stake in Aspen via a transfer of assets in a deal that will give the South African firm more muscle globally. [ID:nLC206178]
"(Adcock) has got just over 400 million rand to spend ... I would think that with that cash laying around, they'd certainly be looking at other targets in South Africa and more so in the rest of Africa," said Breitenbach.
Adcock, which sells painkillers such as Panado and flu remedy Corenza Para-C, said CMSA had failed to give its views on the merits of the proposed transaction and has asked the Johannesburg Stock Exchange to investigate.
Adcock said the cost related to the abandoned takeover would be 12 million rand. CMSA said it would respond to Adcock's allegations in due course.
Adcock Ingram said first-half headline earnings per share -- South Africa's main profit gauge -- rose 18 percent to 204.8 cents, boosted by an anti-retroviral tender awarded last year.
Adcock also said it planned to complete a broad-based black economic empowerment by year-end. The deal would include its own black staff as well as strategic shareholders. ($1=7.960 Rand) (Additional reporting by Serena Chaudhry; editing by Simon Jessop)
