Adcock Investor PIC Says Blocking CFR Bid to Still Pay Off

The Public Investment Corp. said its opposition to Chile’s CFR Pharmaceuticals SA’s takeover bid for Adcock Ingram Holdings Ltd. will pay off even though the South African drugmaker is currently unprofitable.

CFR, Chile’s biggest drugmaker, dropped a 12.8 billion rand ($1.2 billion) offer to buy South Africa’s biggest maker of hospital products on Feb. 7, ending a 10-month fight for control of the company. It was thwarted after Bidvest Group Ltd. built up a 34.5 percent stake, enabling it to block CFR’s bid. The offer was also opposed by the PIC, Adcock’s second-biggest shareholder with a 25.5 percent stake.

“We had been told, give us your assets and in exchange we will give you paper in CFR listed on the Chile stock exchange,” PIC Chief Investment Officer Dan Matjila, 52, said in an Aug. 27 interview at Bloomberg’s offices in Johannesburg. “We’d like to use it, create wealth for ourselves, send it to Chile and then we will probably make you participate when we declare a dividend. We were unhappy with that.”

CFR has since become an acquisition target. In May, Abbott Laboratories, the maker of heart stents and adult nutritional beverages, said it will buy the holding company that indirectly owns 73 percent of CFR.

Matjila also believes there was “a bit of misrepresentation from management in Adcock,” at the “height of the deal” of what the company’s earnings outlook was. Bidvest Chief Executive Officer Brian Joffe became Adcock’s chairman in February and Kevin Wakeford, also from Bidvest, took over from Jonathan Louw as chief executive officer in April.

Time Needed

“I don’t think that the market was fully updated,” Joffe said in a conference call after Bidvest reported earnings today. “I don’t think that the people buying or selling shares had the proper information in order to make a decision. So from that point of view, of course I am disappointed.”

Johannesburg-based Adcock said last week its loss per share, excluding one-time items, was 1.80 rand in the nine months through June, compared with a profit of 2.72 rand a year earlier. Wakeford said he’s “not expecting any quick fixes” and that changes the new management are making need a “bit of time to gain traction in the market.”

“I think there have been some strategic errors made on where its got to and some of that needs to get unwound and it may take some time,” Joffe said. “The medium term prospects for Adcock are there. The only question is to what extent will Bidvest participate in it,” he said referring to questions about whether Bidvest would raise its stake in Adcock and take control of the company.

Revamped Plants

Not long before the talks with CFR were announced, Adcock completed revamping its plants, prompting Louw to say that the “bride is now dressed and ready for the wedding,” according to Matjila. “That’s an expensive wedding dress,” Matjila said of the upgrades. Louw declined to comment when contacted on his mobile phone.

CFR’s bid valued Adcock at 74.50 rand a share to 75.78 rand a share. The PIC had calculated the value at about 82 rand and had also wanted to be a partner with CFR, Matjila said. Adcock, which has dropped about 25 percent since Bidvest built it’s blocking stake, declined 0.5 percent to 51.37 rand by the close in Johannesburg.