Adcock “kingmaker”. PIC’s Masilela, explains why CFR takeover offer a dead duck, Chileans wasting time.

Business is a pretty rational pursuit. Act emotionally and, in time, the marketplace is sure to punish you. Those who survive and eventually thrive do so because deep down they understand that the market isn’t personal. Much as you might love a product or service, it will not succeed if you cannot get consumers to share your perspective. But logic and good sense often get tossed aside in the heat of takeover battles. Not just by the protagonists. Messengers, too, can be influenced. Which is why combatants pay their lobbyists so handsomely. These lobbyists (or “Investor Relations consultants” as they prefer to describe themselves) are judged by how successful they are in getting influential voices to support their side. In the takeover battle for Adcock Ingram, lobbyists for Chilean group CFR will have celebrated yesterday’s Business Day editorial as a rare victory in a war they have been losing against rival Bidvest.  The influential newspaper argued that the kingmaking Public Investment Corporation’s opposition to the offer was “inexplicable” and “harming the country’s reputation.” There has been enough in my engagement with CFR’s lobbyists to realise they’ve given up on me. Unfortunately, from snide comments passed, it’s not because they believe I’m impartial. That’s their privilege. But pretty much from the outset, we at Biznews have been pointing out that the spin around the deal being a proxy for foreign investment is just that – spin. The success or otherwise of the proposed transaction will dependent on the way Adcock shareholders vote. And investment professionals have two big problems with the CFR approach. First that it is not an all-cash offer. And, second, that Adcock’s management has underperformed so the timing of the sale is inopportune. In none of my engagements with CFR – and its lobbyists – have they satisfactorily addressed those two points. Clearly, from the statement just issued by PIC chief executive Elias Masilela presumably in response to the Business Day article, CFR also hasn’t been able to convince management at the State’s pension fund. The PIC has almost 20% of the Adcock votes and Bidvest around 8%. CFR needs 75%. Without a cash offer at the level the PIC believes is acceptable, the Chileans may as well sail home to Santiago. – AH      

Statement by Elias Masilela, CEO of the Public Investment Corporation:

The Public Investment Corporation (PIC) has noted statements, some of which are patently untrue, made regarding its stance on the proposed acquisition of Adcock Ingram by Chilean firm, CFR. In this regard, the PIC would like to reiterate the following:

• The PIC’s management team has been in contact (through meetings and letters) with Adcock Ingram and CFR as well as their advisers.

• The PIC has explained to both parties why it remains opposed to the proposed deal. The PIC’s reasons are well understood by both parties as attested to by CFR’s letter of 8 December 2013 in which the Chilean company indicated that “it is clear to us that the PIC is not yet supportive…” that they “also acknowledge that the PIC may still have concerns regarding the structure of the offer, specifically a preference for a greater amount of cash and/or the option to retain a direct shareholding in Adcock Ingram. You will appreciate, however, that these matters go to the heart of our Transaction structure proposals and therefore cannot be altered at this stage”.

• The PIC’s reasons for opposing the proposed deal include, amongst others, the following:  PIC believes that a lot more value can be extracted for shareholders through changes in the manner in which the company is managed.  Furthermore, the offer by CFR to pay Adcock Ingram shareholders a combination of its shares and cash reduces the potential for current Adcock Ingram shareholders to benefit fully from any turnaround in Adcock Ingram’s financial performance.  We believe that CFR shares are fully valued whilst Adcock Ingram’s share price has the potential to rise substantially in value through better management.

• The PIC supports foreign direct investment into South Africa as long as such FDI has predictable long-term benefits for the South African economy. Recent examples include Barclays and Walmart.

• The Weinstein family currently controls 73% of CFR and although this will be diluted, CFR will remain a family controlled business. Given our experience of corporate governance challenges with some family controlled businesses locally, we believe this introduces risks to the investment, especially considering the short listing history of CFR on the Chilean Stock Exchange.

• Finally, the PIC’s primary mandate is to increase the value of funds it manages on behalf of its clients, of which the biggest by far is the Government Employees Pension Fund (GEPF).