Chile's CFR Pharmaceuticals is threatening to pull its $1.3 billion bid for South African drugmaker Adcock Ingram if the latter's biggest shareholder doesn't come on board with the deal. But CFR chief Alejandro Weinstein is in Johannesburg this week hoping to salvage the deal.
CFR has been angling to buy Adcock since the summer, and it has been in exclusive talks with the South African company since August. And there's good reason for its interest. South Africa is the continent's largest economy and plans to phase in a national health plan that will rely heavily on generic drugs. Last year it awarded contracts for HIV and AIDS meds to drugmakers, including Adcock Ingram and Aspen Pharmacare.
Adcock's shares, however, have been underperforming those of Aspen and Cipla Medpro, the country's third-largest generics maker. But CFR figures that it can take advantage of Adcock's excess manufacturing capacity to support expansion into emerging markets. Though initially worried about inviting foreign ownership into the country's leading drugmaker, key shareholders backed the deal on the strength of CFR's promises to build up employment in South Africa rather than cutting back.
But state-owned pension fund manager Public Investment Corporation continued to balk and finally announced last week that it would opt out of the deal. Though PIC didn't say much about its opposition, sources told Reuters earlier this week that the group was worried about foreign ownership and management. PIC also believes CFR's stock is overvalued, so it's skeptical of the portion of the purchase price paid in shares, the news service reported.
Weinstein told Johannesburg's Independent Online that he was shocked by PIC's opposition to the deal, saying he learned of the rejection in the media. "On the basis of the economics and finances of our offer, I cannot understand how the PIC made its decision," Weinstein said. "I don't see an alternative for shareholders as good as this."
Adcock has been looking for a buyer for months, forced into the search by an unsolicited offer from the transportation and distribution company Bidvest, which wanted to pay $675 million for a 60% stake in the drugmaker. After PIC's rejection hit the news, Bidvest leaders said they were watching to see how Adcock would respond.
Last week, analysts suggested that PIC's refusal to support the latest buyout might be a negotiating tactic, perhaps aimed at winning an all-cash bid rather than a cash-and-stock offer. Will Weinstein come through with a sweetener? Or will Bidvest, waiting in the wings, step in? Stay tuned.
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