Adcock Largest Shareholder Won’t Support CFR Takeover Bid

Adcock Ingram Holdings Ltd.’s largest shareholder said it won’t back a $1.2 billion takeover proposal from Chilean drugmaker CFR Pharmaceuticals SA, saying it’s not in the investor’s best interests.

South Africa’s biggest asset manager Public Investment Corp. “has come to the unanimous decision that it is not in the best interest of our shareholding to support the CFR offer in its current form,” Chief Executive Officer Elias Masilela said in an e-mailed statement today, confirming an earlier text message sent to Bloomberg News. The non-binding nature of the proposal means the terms of the bid for Johannesburg-based Adcock “cannot be considered to be final,” he said.

Adcock shares fell 4.5 percent to 68.40 rand at the close of trading in Johannesburg, the biggest drop since May 2012. CFR’s bid for South Africa’s largest supplier of hospital products valued it at about 73.51 rand per Adcock share, according to both companies. CFR shares declined 1.5 percent as of 2:04 p.m. in Santiago, the most since Oct. 17.

Adcock said Oct. 30 that shareholders representing about 45 percent of its stock backed the deal. As many as 75 percent of investors have to vote in favor for the takeover to succeed, Khotso Mokhele, chairman of Adcock’s independent board, said Sept. 11. The PIC, which oversees the pension funds of South African government workers, says it has an 18.6 percent stake in Adcock.

A spokeswoman for Adcock wasn’t immediately available for comment.

Vote Risk

“It would be a risk to put the offer to a vote from here,” David Shapiro, a director at Johannesburg-based money manager Sasfin Securities, said by phone. “Adcock needs changes, it needs new management, but this deal was always going to be difficult as it would mean Adcock would be controlled from Chile.”

CFR, Chile’s largest drugmaker, said in July it would pay 12.6 billion rand in cash and shares for Adcock as it seeks to expand in other emerging markets. The company said it would settle as much as 51 percent to 64.3 percent of the purchase through cash and the balance with new CFR shares.

PIC Chief Investment Officer Daniel Matjila said on July 17 the company was concerned that the stock component of the CFR offer might make it a poor deal for investors. He said in May the PIC would prefer that a South African company buy the maker of Panado painkillers and Corenza cold medicine.

Structural Challenges

“I am surprised by the PIC’s position given several structural challenges faced by Adcock,” Mathew Menezes, an analyst at Avior Research, said in e-mailed comments. Adcock’s first-half profit fell 5.4 percent in the six months through March, the company said on June 4.

Oasis Group Holdings, which holds about 2.3 percent of Adcock shares, said on July 16 it won’t support the CFR bid as it doesn’t want the Chilean company’s stock.

CFR has faced competition from London-based private equity firm Actis LLP and Bidvest Group Ltd., a Johannesburg-based food and car sales company, in the battle to control Adcock.

Bidvest Chief Executive Officer Brian Joffe said in a statement he couldn’t comment as he doesn’t have any details or background pertaining to the PIC’s decision.

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