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Adcock Takeover May Value Company at $1.5 Billion: JPMorgan

Adcock Ingram Holdings Ltd., South Africa’s largest supplier of hospital products, may gain a further 12 percent from yesterday’s 30-month high after it got takeover offers, according to JPMorgan Chase & Co.

Adcock’s board has received non-binding proposals that could lead to an offer for the whole company or a controlling stake, the Johannesburg-based maker of Panado painkillers and Corenza cold medicine said yesterday. The stock rose 8.9 percent to 67.50 rand by the close in Johannesburg, its highest level since November 2010, valuing the company at 11.7 billion rand ($1.29 billion).

The wording suggests there may be “multiple bids for the company,” JPMorgan analysts Alex Comer and Avinash Kalkapersad wrote in a note dated yesterday. “Under this scenario, we believe the stock could be worth 75.80 rand a share based on historic transaction multiples and a bid premium.” That would value Adcock at about $1.46 billion, according to data compiled by Bloomberg. The shares were down 1.1 percent at 66.75 rand by the close in Johannesburg.

The approaches probably came from foreign companies as there are no obvious South African bidders other than Bidvest Group Ltd., which had an offer for a controlling stake in Adcock rejected in March, Mathew Menezes, an analyst at Avior Research, said by phone from Johannesburg. The latest proposals aren’t from Bidvest, Adcock said in yesterday’s statement.

Remains Interested

Bidvest still wants to acquire Adcock and must get the same information made available to other bidders, Chief Executive Officer Brian Joffe said.

“Bidvest’s current position is that it remains interested in Adcock,” Joffe said in an e-mailed response to questions today. “There is no impediment to Bidvest now making an offer direct to Adcock shareholders.”

Bidvest offered to buy 60 percent of Adcock for about 6.2 billion rand ($685 million) on March 22. The offer was half in cash, at 65 rand a share, and half in stock at a ratio of one Bidvest share for every four Adcock shares. The bid values Adcock at 65.19 a share at current prices, 2.3 percent below the stock’s cost today. Bidvest said last month it would take the offer directly to shareholders in the absence of support from the board.

Bidvest “will make a formal offer to the shareholders rather than an informal” one and at a higher price compared to the initial proposal, Kate Turner Smith, a pharmaceutical equity analyst at Cape Town-based BPI Capital Africa (Pty) Ltd., said in a phone interview.

Launch Pad

Adcock has had a marketing and distribution agreement with U.S.-based Merck & Co. to sell non-prescription medicines as well as treatments for high blood pressure since 2010. Merck spokeswoman Kelley Dougherty declined to comment.

“Adcock would also offer an acquirer a potential launch pad into the rest of Africa,” JPMorgan’s Comer and Kalkapersad said. Weakness in the South African rand has also made “Adcock more attractive to potential international buyers,” the JPMorgan analysts wrote. The rand has declined 6.8 percent against the dollar this year, the worst performer of 24 emerging market currencies tracked by Bloomberg.

Adcock shares have gained 6 percent in the past 12 months, compared with a 72 percent increase at larger competitor Aspen Pharmacare Holdings Ltd., 18.2 percent owned by Brentford, England-based GlaxoSmithKline Plc.

Adcock has fallen behind Aspen because of “product losses, a previously weak tender performance, insipid over the counter markets and a weak rand,” JPMorgan said.

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