BBBEE is trump card in Adcock Ingram/CFR affair

Black Economic Empowerment (BEE) is billed to play a significant role in the proposed R12.6bn merger between local pharmaceutical giant Adcock Ingram Holdings and Chilean player CFR Pharmaceuticals.
That is at least the word from Adcock Ingram which stands to be taken over by CFR Pharmaceuticals. In the latest statement announcing that the two companies have concluded a transaction implementation agreement, it is said that CFR has concluded non-binding memoranda of understanding with Adcock Ingram’s BEE shareholders. These BEE shareholders are made of both strategic BEE shareholders and qualifying staff and the idea is to see them remain invested in the company. The statement added that participants in each of Adcock’s employee incentive schemes would also benefit from either the acceleration of their share options or an equitable offer from CFR.
CFR has proposed to acquire 100% of Adcock Ingram’s ordinary shares for R73.51 per ordinary share. This represents a 31% premium to the unaffected Adcock Ingram share price of R56.20 on 20 March 2013. The statement said proposed offer price is currently worth R75.92 per ordinary share based on the closing price of CFR shares on the Santiago Stock Exchange on 10 September 2013.
The proposed transaction is to be effected via a minimum of 51% and maximum of 64.3% in cash and a minimum of 35.7% and maximum of 49% in new CFR shares. CFR plans to seek a secondary listing on the JSE in a first of its kind transaction in South Africa.
The statement said the combination of Adcock Ingram and CFR would create a substantial and uniquely diversified emerging markets multinational, targeting patients across Latin America, Africa, South East Asia and India. “The emerging markets pharmaceutical leader would have combined revenues of approximately R12.1 billion (approximately US$1.3 billion) and an asset base of approximately R215 billion (approximately US$21.5 billion)”.
Adcock Ingram chairman Khotso Mokhele said “The CFR proposal remains the most favourable received to date and is evidence of our commitment to maximise value for our shareholders. It is superior in terms of proposed offer price, conditionality, strategic rationale, future value creation potential and execution risk. Importantly, it will ensure that South Africa remains core to the merged company thus delivering value not only to our shareholders, but also to our employees and South Africa at large. CFR also understands the importance and value of empowerment.”
The BEE theme featured prominently when Mokhele and his board killed a takeover proposition from Bidvest earlier this year. After characterizing the Bidvest offer of about R63 per Adcock share as opportunistic, Mokhele said the Bidvest’s “independent board was concerned about the high level of conditionality, including “walk-away” rights, the absence of comparable offers for two of our other key stakeholders, namely our BEE partners and employees, who are participants in our group share incentive scheme”.
He characterised the Bidvest offer as “ignoring two important stakeholder groups, namely our BEE shareholders, who hold two different classes of unlisted ordinary share capital, as well as our employees, who are participants in our group employee incentive schemes”.

  • […] The proposition is significant in adding to the rising number of high profiled foreign direct investment (FDI) flowing into South Africa with an eye on launching an Africa wide expansion. The proposal joins another high profiled proposition made by Chilean firm CFR Pharmaceuticals to takeover local pharmaceutical giant Adcock Ingram Holdings. This makes for a growing list that may include the Barclays/Absa affair, Walmart/Massmart, Norton Ro… […]

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