After a protracted takeover battle, Bidvest is set to take control of South African pharmaceutical group Adcock Ingram (to see its share price and financials, visit the Biznews.com data bank:Â JSE:AIP). In this interview with Biznews.com editor Alec Hogg on CNBC Power lunch, investment expert Mark Ingham of Ingham Analytics explores what’s next for the company.
Mark doesn’t expect Bidvest to clean out the top ranks of Adcock Ingram, though it does seem inevitable that CEO Jonathan Louw will no longer feel welcome in the boardroom. Louw was publicly supportive of Bidvest’s rival suitor, Â Chilean group CFR Pharmaceuticals.
The stock watcher expects it will take some time for Adcock Ingram to be cleaned up and looking attractive for shareholders. But any further weakness in the share will represent a good opportunity to stock up on it. Mark expects improvements to take about two years to start showing in the share price. – JC
Adcock Ingram: What’s next for pharmaceutical group as Bidvest takes command
To watch this Power Lunch video click here
ALEC HOGG:  If you have been following over the past few months, in fact since March last year, you would have seen that there has been a big takeover battle going on in South African for the 100-year old pharmaceutical group, Adcock Ingram. Well that takeover battle is now over and the shareholders who didn’t take advantage of an offer that was made by Brian Joffe to buy out their shares at R70.00 per share – which closed last week, pretty much – will now be looking at a share price, which is ten percent below that. Is it going to fall further or is this the time that we need to be backing Joffe and buying the Adcock shares into the future? Mark Ingham from Ingham Analytics has been following this story more closely than most. Mark, it wasn’t surprising to see that once Brian had concluded his 34.5 percent that he was looking for at R70.00 per share – and that cut-off was reached – but the share price would fall back because the takeover was over.
MARK INGHAM: Yes, it’s all over including the shouting, Alec. I think what we’re probably awaiting now is ‘next steps’. In typical Bidvest fashion, we’re not going to see a hostile situation prevailing. I think we’ll probably have a few quiet fireside chats initially.
ALEC HOGG:  It may be so, but there’s already been a shot across the boughs at the annual general meeting. Andrew Thompson who is the Independent Director, and who has been flying the flag for the CFR deal did not get re-elected to the board. One presumes that Bidvest voted against his re-election.
MARK INGHAM: I think that may be the case, but from my point of view Alec, this is ancient history now and one is looking forward. As you rightly said, we had the first letter last March and that was for 60 percent of the company, paid for with a combination of cash and shares. Bidvest now has 34.5. That is a crucial threshold beyond which, it could not go in terms of governance. Nonetheless, it does leave a door open at some future juncture, for them to take a meaningfully higher stake and possibly take over the company. This is a process now. Rome is not going to be built in a day, and there are a number of options open to Bidvest on the table – in conjunction, I might add, with the Adcock people too. I think the impetus that arguably, has been lacking in the company for quite some time now, will probably get that added thrust now that you have a meaningful controlling shareholder who will have influence on the future operational outlook for the company as well.
GUGULETHU MFUPHI: What does this mean – perhaps – for the future of Adcock executives?
MARK INGHAM: Well again, traditionally Bidvest is not a ‘hire and fire’ company. There may be one or two luminaries shall we say, who will be seeking their fortunes elsewhere. They may decide to do that voluntarily or they may be encouraged to do so. A business like Adcock does require competent people and it’s very unlikely that we’ll have an unsettling situation. Most of the operational people…many of the key senior people will be remaining I would think, in their posts, but from a leadership point of view – I think that’s where the real change is going to happen.
ALEC HOGG:  So presumably, Jonathan Louw the Chief Executive would be one of those luminaries who would no longer be around. He had that famous press conference where he said that Adcock Ingram was the bride that was being prepared for the Chilean groom. I don’t know how well that would sit with the new controlling shareholders, if you take the PIC on the one side and Bidvest on the other.
MARK INGHAM: Quite, and your words not mine Alec, but someone’s been left at the altar here and I don’t think there’s going to be much love lost between the person you’ve just mentioned and the incoming people who have reasonably influence, shall we say.
GUGULETHU MFUPHI: I like how you’re playing this game, Mark – very carefully. Coming back to Adcock share, is there any value in it, given the fact that we saw it fall quite sharply yesterday by as much as seven percent?
MARK INGHAM: Yes, Alec will know this too. I was saying I would think that fairer value would be 55, if we didn’t have all this bid action and all this excitement. In fact, it may well be lower than that, given the changing environment, not least the currency woes. Bidvest could provide shareholders with a proven formula for future value accretion. For the canny investor who would probably be looking at weakness at this stage… Let’s say we do go below 60, of course, we do still have the half-year results to get out, which will only come in May, and they’re not going to be that pretty. They also have all these costs they’ve expended in this jolly jaunt of theirs over the last 12 months or so, so that will be expensed into the numbers too.  If one does have line of sight and if you’re a patient investor, now is the sort of level you would want to be picking up, and any weakness to mind, represents a great opportunity. Let’s bear in mind too: Adcock is not a fundamentally failed business. It has some terrific assets, a great history, and good brand recognition, and so those are the reasons that Bidvest is in fact buying it. It’s buying it because can see it doing a lot better with what are pretty good assets.
ALEC HOGG:  Mark, how long do you think it’s going to take Brian Joffe to turn Adcock around?
MARK INGHAM: Well, it won’t be Brian per se. I think Brian would be the first to admit he doesn’t walk on water. I think, given the strategic influence that it will have, some of it will be subtle and some will be rather less subtle, and so there could be some bloodletting in the next few weeks and months. To turn this business into the sort of optimal performer that you would need to see – with the positive Bidvest influence – to my mind Alec, you’re really looking at a two-year time horizon or so. We had a similar situation with a few business that are currently in the Bidvest stable – McCarthy, for instance. The timing on that was absolutely perfect and that took a while. If one wants enduring results and not just some accounting trickery, then there has to be quite a lot of spadework done in this group. I would also say Alec; we may need to look at reinvestment too. There may be aspects of this group I think, that we need to consider bulking up and there may well be opportunities for them to actually acquire, so that’s also going to be on the actual agenda. Â
For more on Bidvest, read: Bidvest’s Joffe victorious in War for Adcock Ingram – now he wants to win the Peace
