Adcock Posts Loss as Cost of CFR’s Failed Takeover Mounts

Adcock Ingram Holdings Ltd. (AIP), South Africa’s largest supplier of hospital products, posted a first-half loss as it wrote off expenses related to a failed takeover attempt by CFR Pharmaceuticals SA (CFR) and margins remained under pressure.

The loss of 37.9 million rand ($3.7 million) in the six months through March compares with a restated profit of 323.4 million rand a year earlier, the Johannesburg-based company said in a statement today. Sales climbed 3 percent to 2.43 billion rand from 2.36 billion rand.

“These results are not what we want them to be and that a change is necessary in the way in which we operate,” Chief Executive Officer Kevin Wakeford said in a presentation in Johannesburg, where the company is based. “It is because of this that we have in the last month spent a lot of time developing plans to reorganize our business.”

The board has approved changes creating separate operating units, starting July 1, that will allow better management of returns and more flexibility in the market, he said. The “drawn out and exacting” CFR bid “preoccupied certain key management and they, together with the board of directors, became embroiled by the demands of these events and actions,” the company said in the statement.

Dropped Bid

CFR, Chile’s biggest drug maker, called off its 12.8-billion rand cash and stock offer to buy Adcock on Feb. 7 after Johannesburg-based Bidvest Group Ltd. (BVT) built a blocking stake. The CFR deal valued each share at 74.50 rand to 75.78 rand and was supported by Adcock’s board.

Bidvest Chief Executive Officer Brian Joffe became Adcock’s new chairman following the 10-month fight for control of the company, with Wakeford, another Bidvest executive, replacing Jonathan Louw as CEO in April. Costs related to CFR’s bid were 91 million rand in the six months, Adcock said today.

Adcock shares fell as much as 4.6 percent, the biggest intraday drop in almost four months, and traded 2.6 percent lower at 57.70 rand as of 11:40 a.m. in Johannesburg. That extended their decline this year to 19 percent, compared with a 3.2 percent gain for Aspen Pharmacare Holdings Ltd. (APN), Africa’s largest generic-drugs maker.

Business Restructured

South Africa’s over-the-counter market growth slowed to half the pace of a year earlier as consumers bought smaller packs and lower-priced products, Wakeford said. While business with private hospitals has increased, sales to government still account for about 60 percent of total revenue, hurting profit margins, he said.

The company’s performance should improve “with the way Kevin plans to restructure the business,” Chief Financial Officer Andy Hall said at the presentation. Improvements are anticipated in the next 12 to 18 months, he said.

The rand’s 19 percent fall against the dollar last year raised the cost of imported ingredients, Wakeford said. The Department of Health’s approval of a 5.8 percent increase in the price drugmakers can sell certain medicines to retailers is “insufficient” to offset the impact of the weak currency and wage and utilities inflation, he said.

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

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Kim McLaughlin, John Bowker, Thomas Mulier

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