CFR’s Adcock Bid to Double Debt and Raise Drugmaker’s Burden

CFR Pharmaceuticals SA’s offer for South African drugmaker Adcock Ingram Holdings Ltd. is set to double the Chilean company’s debt as it seeks to expand abroad and may load Adcock with more liabilities.

CFR increased its offer to buy Adcock, the Johannesburg-based maker of Panado painkillers and Corenza cold medicine, by 2 percent to 12.8 billion rand ($1.2 billion) on Dec. 13. The bid, with a minimum of 50 percent to be paid in cash, values each share in the company at 74.50 rand to 75.78 rand, Adcock said.

To raise the cash portion of its offer, Santiago-based CFR has borrowed about $600 million, more than doubling its debt from $520 million, according to data compiled by Bloomberg. CFR will use Adcock’s assets as security, according to a Dec. 11 note by Johannesburg-based analyst Mark Ingham of Ingham Securities. Should the deal be accepted by shareholders, the combined companies’ debt of about $1.2 billion will be five times its estimated earnings before interest, tax and other deductions, Ingham said.

The yield on CFR’s $300 million bond due in December 2022 was 6.29 percent yesterday, 86 basis points, or 0.86 percentage point, higher than July 3, when the drugmaker announced plans to buy the South African company. Fitch cut the outlook on CFR’s rating to negative that month.

A group led by Bidvest Group Ltd., South Africa’s second-biggest company by revenue, made an all-cash proposition of 70 rand a share to buy a 34.5 percent stake in Adcock on Dec. 2.

Bidvest also filed a complaint regarding the financing of CFR’s proposal. CFR needs a guarantee from Adcock to finance a loan required to complete the potential deal, Bidvest said in a document lodged in the High Court in Johannesburg on Dec. 3. Provision of that guarantee would be “unlawful,” Bidvest said in the document. The financial assistance that Adcock may give CFR won’t be unlawful, according to Adcock’s board.

“The Bidvest speculation is that there must be an undisclosed present commitment by Adcock Ingram to provide financial assistance,” Adcock said in a Dec. 13 statement. “This speculation by Bidvest has no foundation in fact and is incorrect.”

David Unterhalter, counsel for Bidvest, yesterday argued at an Adcock meeting that the new CFR offer is based on the issue of new CFR shares and that this will have financial implications that “are not spelt out, but will be dilutive in effect.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE