South African drugmaker Adcock Ingram invested in new manufacturing capacity as the country looked to expand its health services. But the country's second-largest drugmaker hasCF found that business has not come fast enough to keep the new facilities from being a drag on its finances. Chilean drugmaker CFR Pharmaceuticals believes it knows just what to do with all of that new manufacturing capability.
CFR last week made a $1.3 billion cash-and-share offer for Adcock. It said there are lots of reasons for a merger--combined access to markets in Latin America, Africa, Asia and Europe and expansion of Adcock's over-the-counter portfolio in CFR's markets. But among the reasons it finds compelling for making the bid for Adcock is that by filling up that excess manufacturing capacity and combining their API purchasing power, the company believes it can reduce production costs.
"CFR's strategy to expand its manufacturing footprint should enable it to leverage the excess capacity available in the combined group to optimize utilization rates resulting in further manufacturing efficiencies and cost reductions," the company said in a statement. It said that CFR has no plans to cut jobs at the combined 18 manufacturing facilities and believes that growth the two could achieve as a merged company will actually lead to a need to hire more employees.
"The combined company would optimize manufacturing efficiencies by shifting production of certain products to South Africa, resulting in additional investment in manufacturing," Khotso Mokhele, Adcock chairman, said in a statement.
The offer, which the boards of both companies said they support, comes after an unsolicited bid for Adcock in March from the industrial conglomerate Bidvest. That offer of 62.50 rand per share is significantly less than the 73.51 rand per share that CFR is offering. When that offer was made, an analyst told The New Age that Adcock shares had been underperforming South African competitors Aspen and Cipla Medpro because of its investments to expand its manufacturing.