Top Adcock shareholder nixes CFR offer, endangering $1.3B deal

So close and yet too far: Chile-based CFR Pharmaceuticals has hit a wall in its quest to buy the South African drugmaker Adcock Ingram. Though leading Adcock shareholders had backed the $1.3 billion deal, the company's largest investor--the state-backed pension fund manager Public Investment Corp. (PIC)--said no go. One of the sticking points is CFR's base outside the country.

South African officials have expressed reservations about the deal ever since CFR made its 73.51-rand-per-share offer. As one of the country's leading drugmakers, Adcock is also a key supplier of remedies for South African patients and an important employer. The concern was that a foreign buyer might move facilities, cut jobs, or reduce supplies of needed drugs.

Still, analysts had expected PIC to end up backing the cash-and-stock deal. Not so. PIC said yesterday that its management and investment committee came to a "unanimous decision that it was not in the best interest of its shareholding to support the CFR offer in its current form."

And given the fact that PIC controls 18.6% of Adcock, its opposition to the deal could scuttle it altogether. CFR says 45% of Adcock shareholders support the buyout, but it needs 75% to make it happen. Another major shareholder, Foord Asset Managers with 10% of the company, has yet to decide.

There's still hope for CFR, however. As some analysts point out, PIC's refusal may be a last-ditch negotiating tactic. Some investors have been wary of the stock portion of CFR's bid because they see the Chilean company's shares as overvalued. They'd prefer an all-cash deal. Analysts told BusinessDay in Johannesburg that CFR and Adcock might rework the deal to put more cash into the mix--perhaps even reduce CFR's ownership stake so that a share of the company could remain with local ownership.

"It is a good negotiating move," 36One Asset Management analyst Jean Pierre Verster told the news outlet. "This is not the end of the deal. I would hope CFR and Adcock are open to restructuring the deal."

- read the BusinessDay story

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