Let it never be said that mergers and acquisitions are boring, not when there are deals like Chilean-based CFR Pharmaceuticals’ dramatic and controversial bid for South African pharmaceutical company Adcock Ingram going down. As you may know, the mooted deal has been floundering because the Public Investment Corporation (PIC), which holds 18.9% of Adcock’s stock, has declined to support it. According to the PIC, the original offer of R73.51 a share was too low. CFR duly raised its bid to R74.50 (some of it in CFR shares), but the PIC remained unimpressed, saying it preferred a cash offer. In response, CFR pointed out that that the PIC has thrown its support behind a Bidvest bid pricing Adcock at R65 a share, and argued that the PIC’s objection is not to the bid, but to CFR’s Chilean origins. Suffice it to say the situation is tense, and as Ingham Analytics’ Mark Ingham explains in this interview, a recently held shareholders meeting at Adcock was anything but dull. Shareholders will meet again in January to decide the fate of the CFR bid, but as things stand, it looks like the players are all at daggers drawn. – FD
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ALEC HOGG: We do indeed have Mark Ingham on the line now. These things happen. Sometimes the wrong plugs are put into the place, but to get onto that story that we mentioned a moment ago, Adcock has postponed its shareholder meeting to next month to give investors time to consider a revised offer from CFR. The story here is that CFR, the Chilean company, wants to entice the Public Investment Company to back the deal. Mark Ingham from Ingham Analytics was in the studio recently. He’s been following the deal very closely. Mark, we did have Nastassia Arendse at the meeting yesterday. She reported back to us and gave us some useful insights. It appeared as though Bidvest had lawyers there, standing up, and making a case.
MARK INGHAM: Alec yes, I think that’s in the public domain and I can’t comment any further on that, other than what has been released on SENS.
ALEC HOGG: Technically, what exactly was the purpose of having the meeting yesterday?
MARK INGHAM: Well, the meeting was due to go ahead as flagged in the shareholder circular, and as we discussed I think on Friday last week, Alec. At the eleventh hour, the goalposts were changed, and so I think the argument of Bidvest was that it should go ahead as planned. In fact, what has transpired is that the proverbial can has been kicked down the road into January – perhaps late January. We don’t have a final date. I think what’s interesting though Alec, insofar as the public relations goes, is that the implication is that the postponement will give shareholders the time to reconsider this purported higher offer. We can go into the detail on that just now, but I think it’s worthwhile for your viewers to take on board the fact that the issuance and placement insofar as the new CFR shares are concerned began within 180 days after the 22nd of July 2013. Now, that takes us to the 18th of January – give or take – 2014, in which the shareholders of CFR have to consider this. We’re therefore effectively moving into the CFR time schedule now, insofar as their capital raising is concerned, which remains as yet uncertain.
ALEC HOGG: is it possible? There would certainly seem to be a hint in what CFR announced, or the statement they put out. Is it possible that they would now come with an all cash offer?
MARK INGHAM: Alec, I guess that could be feasible based on what we know, given the balance sheet position of CFR. Even in the event of an overwhelming minority support, I fail to see how they would bridge the gap, which is meaningful. We’re talking about hundreds of millions of dollars here.
ALEC HOGG: So they don’t actually have the money to do an all-cash transaction.
MARK INGHAM: No.
ALEC HOGG: And they’re trying to use their own shares to make sure that this will happen, but the PIC is saying ‘we don’t want your shares’. Is that, in a nutshell, where we are?
MARK INGHAM: You know Alec, there have been certain comments attributed to PIC. I can’t vouch for the veracity of that, but if a shareholder or any shareholder for that matter is looking for an all-cash deal… Just as an aside to that Alec, if it was an all-cash deal, that would relieve the considerable financial pressure that would be placed on the combined entity going forward and therefore, the capability to reinvest then certainly, I think anyone would take that very seriously. However, as I say the capacity to do that appears not to be there, unless CFR has the capability to pull rabbits out of the hat, but I don’t see that happening.
ALEC HOGG: Well, our thanks to Mark Ingham from Ingham Analytics.
