April 2, 2013 / 1:41 PM / in 5 years

UPDATE 2-S.Africa's Adcock says Bidvest's bid is opportunistic

* Bidvest has offered $675 million

* Adcock says its growth trajectory is improving (Adds chairman comments)

By Tiisetso Motsoeneng

JOHANNESBURG, April 2 (Reuters) - South Africa’s Adcock Ingram said Bidvest’s bid for the generic drugmaker was “opportunistic”, threatening a $675 million deal that would give the conglomerate a big foothold in the fast-growing market.

Bidvest last week made a cash and share offer valued at around 6.2 billion rand ($675.16 million) for 60 percent of the nation’s second-largest and underperforming generic drugmaker.

Adcock said Bidvest swooped in with an “opportunistic” approach when its growth trajectory was improving because it had made “good progress” in implementing its strategic plans.

“Over the last four years, we planted, the seeds are starting to germinate and we are set for harvesting hence we say the proposal is opportunistic,” Khotso Mokhele, Adcock’s chairman, said in a telephone interview.

Adcock has underperformed rivals both operationally and in stock market terms in recent years but Mokhele said investments in factories, acquisitions and distribution partnerships with global drugmakers had set it up for growth.

Sometimes called “the General Electric of South Africa”, Bidvest has a reputation of buying underperforming assets that can benefit from its vast distribution network and customer base.

Mokhele also said Bidvest’s proposal lacked legal and other details that would allow its board to express a formal view about the merits of a deal to shareholders.

“Bidvest has provided no insight into the strategic rationale for its proposal and the potential benefits for Adcock Ingram and its remaining minority shareholders,” Mokhele said in a statement.

One banker, who is not involved in the talks, said the comments suggested Adcock was not happy with the price.

“Clearly, the price is the source of all this ... even if Bidvest addresses all the legalities in its letter but fails to improve the price it’s likely that Adcock board will reject it,” the banker said.

Bidvest’s cash and share offer of about 61 rand per share, was around 20 percent below what Adcock Ingram should be trading at based on its most likely earnings growth prospects, according to Thomson Reuters StarMine.

StarMine’s intrinsic valuation model puts Adcock’s share price at 79.06 rand, based on an expected 6.3 percent five-year compound annual growth rate.

The deal, if concluded, would give Bidvest a substantial presence in the generic market, which is set to take off as the government prepares a national health insurance plan which relies on the use of cut-price versions of branded drugs.

India’s Cipla Ltd has also bid $500 million for Adcock’s smaller rival Cipla Medpro but squabbles about the price could also scupper that deal.

Shares in Adcock closed 0.5 percent lower at 60.25 rand while Bidvest inched down 0.35 percent to 241.52 rand. ($1 = 9.1830 South African rand) (Reporting by Tiisetso Motsoeneng; Editing by Helen Massy-Beresford)

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