October 21, 2013 / 5:00 PM / 7 years ago

Four Adcock shareholders would back $1.3 bln CFR offer

JOHANNESBURG, Oct 21 (Reuters) - Four investors in South African drugmaker Adcock Ingram, including two top-10 shareholders, said they will back a $1.3 billion offer from Chile’s CFR Pharmaceuticals, a deal that would create an emerging markets drugs powerhouse.

CFR has already won support for its cash and shares offer from the target company’s board, but there have been doubts as to whether the deal will go through, given South Africa’s history of scuppering cross-border deals.

Adcock’s top shareholder, the government-run Public Investment Corporation (PIC), has said it would prefer a local owner for South Africa’s second-biggest drug maker.

“We are very much in favour of it both in terms of the indicative pricing and the industrial and strategic merits,” Chris Wood, a fund manager at Prudential Portfolio Managers, Adcock’s third-biggest shareholder, told Reuters.

“We think the synergies and cost savings of putting these two businesses together would be significant, so, in all likelihood, we would choose to remain invested in the combined entity,” Wood added.

CFR said last month it would offer up to 75.92 rand per Adcock share, made up of a minimum of 47.29 rand in cash and the balance paid in new CFR shares.

But the cash portion of the offer could be increased to 73.51 rand, depending on the outcome of CFR’s planned $750 million rights offer of new shares.

If the deal goes through, Adcock’s shares would be delisted from Johannesburg, where CFR would plan a secondary listing.

“We like the deal both for where it takes the company and for how much it is worth, but we would have preferred an all-cash offer,” said another top-10 shareholder, who asked not to be identified.


“Who knows what type of management CFR would bring to the combined entity? It’s a risk and that’s why we prefer cash,” the shareholder said.

Oasis Asset Management, which owns about 1 percent of Adcock, is likely to vote in favour of the deal but is also apprehensive about exchanging its Adcock stock for CFR shares.

“Obviously, we’d have to wait for the circular to make the final decision, but based on the information we have, the deal seems fair,” said Oasis portfolio manager Hassan Motala. “But we would like a lot more cash because we believe CFR shares are overvalued.”

36One Asset Management, which owns about 0.5 percent of Adcock, said it would also support the deal but it was yet to decide on how much it would take in cash and new shares.

“We see the deal as an attractive return on our investment and it also elegantly allows investors to benefit from the future recovery of Adcock Ingram,” said Jean Pierre Verster, a portfolio manager at 36One.

Adcock is forecast to grow profits at compound annual rate of about 5 percent over the next five years, according to Thomson Reuters StarMine.

Shares in Adcock were little changed at 70.15 rand, well below the offer price, reflecting investor uncertainty about how Adcock top shareholder PIC would vote.

PIC has said it would prefer a local buyer as the deal with CFR would bring foreign owners to a key player in the government’s ambitious plan to overhaul healthcare. (Editing by David Dolan and David Holmes)

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