July 3, 2013 / 10:06 AM / in 5 years

UPDATE 2-Chile's CFR plans $1.3 bln bid for South Africa's Adcock

* 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 (Reuters) - 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 system.

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 year.

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 told Reuters.

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 HIV/AIDS.

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)

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