Adcock Suspends Dividend as Takeover Talks With CFR Continue

Adcock Ingram Holdings Ltd. (AIP), the South African drugmaker subject to a $1.2 billion takeover bid from Chile’s CFR Pharmaceuticals SA (CFR), suspended its dividend after full-year profit and margins fell as import costs rose.

Net income declined 17 percent to 587.8 million rand ($58 million) in the 12 months through September from a year earlier, the Johannesburg-based company said in a statement today. The gross profit margin as a percentage of revenue declined to 41 percent from 46 percent a year earlier. It was a precondition to CFR making a firm offer that Adcock agree not to make a final payout this year, the company said in a separate e-mailed statement. Adcock paid a final dividend of 115 cents in 2012.

“Trading margins came under pressure as a result of competitive market conditions and the weaker rand,” Adcock said in the statement. “The board-led process to respond to expressions of interest for control of the company necessitated very significant effort and resources and also required that certain other strategic growth initiatives be suspended.”

CFR, Chile’s biggest drugmaker, made a firm 12.6 billion-rand cash and stock offer to buy Adcock on Nov. 15. A combination of the companies would generate cost savings of at least $440 million, while Adcock would account for as much as 46 percent of combined sales, CFR said at the time. Shareholders will vote on the takeover proposal on Dec. 18.

Talks Ongoing

Talks between Adcock, CFR and the Public Investment Corp., Adcock’s biggest shareholder with a 19 percent stake, are continuing, Chief Executive Officer Jonathan Louw said in a phone interview. PIC, which manages government worker pension funds, still hasn’t given its support for the deal.

The rand has slumped 16 percent against the dollar this year, making it the worst performer of 16 major currencies tracked by Bloomberg.

Adcock needs gross profit margins to rise back to 45 percent or more to be “comfortable,” Louw said. The weaker currency cost the company 283 million rand in “pure profit,” he said.

“It’s a huge challenge to offset this kind of margin erosion,” Louw said. The company expects dividends to resume next year.

Sales growth from operations in Africa outside Adcock’s home market climbed 42 percent. There are “small acquisition opportunities” in sub-Saharan Africa, Louw said, declining the comment on specific countries.

Adcock expects to expand the products its offers through its Cosme business in India, Louw said.

Adcock shares were little changed at 70 rand at the close of trading in Johannesburg. The CFR offer values Adcock at 73.51 rand to 77.02 rand per share, the Chilean company said Nov. 15.

To contact the reporter on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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