Bidvest is a global company with businesses in industries spanning banking‚ food‚ coal and car sales‚ while Adcock Ingram is South Africa's second-biggest pharmaceutical manufacturer and derives most of its business from South Africa.
Bidvest made an unsolicited offer to raise its stake in Adcock Ingram from 2.54% to 60% last week‚ offering R65 a share for half the stake‚ and one Bidvest share for every four Adcock Ingram shares for the rest.
That would value each Adcock Ingram share at R61.63‚ a premium of about 9% on the average closing price‚ making the deal worth an estimated R6.2bn.
"Bidvest is known for buying assets when earnings are low. But I would expect them to pay more for the deal to go through‚" said Aeon Investment Management chief investment officer Asief Mohamed. He suggested the price would need to go as high as R85 a share for the deal to be accepted by shareholders.
Aeon Investment Management holds shares in Bidvest.
Adcock Ingram has for the past few years turned in disappointing results‚ as it battled both industry-wide issues and challenges unique to its business.
The local pharmaceutical manufacturing sector has seen margins squeezed by the weak rand‚ which makes imports of key ingredients more expensive‚ and the government controls annual price increases for private sector sales of prescription medicines.
"Adcock Ingram also had to contend with the loss of revenue from painkillers containing DPP over safety concerns‚ a disappointing share of the last government AIDS drug tender‚ and difficulties at its Baxter manufacturing plant‚" said Mahomed.
Adcock Ingram reported a 19% drop in operating profit to R869m for the year to September‚ as consumers reduced expenditure in the retail side of the business. Profits fell on prescription medicines and input costs like electricity and labour rose.
"Adcock Ingram also hasn't been as nimble at bringing new generics onto the market as competitors like Aspen‚" said Mahomed.
36One Asset Management analyst Jean-Pierre Verster said Bidvest had a well-established strategy of acquiring cash generating assets that were under-performing and nearing the end of a bad patch.
36One Asset Management holds shares in both Adcock Ingram and Bidvest‚ but had yet to take a position on Bidvest's offer‚ said Verster.
Adcock Ingram's chief executive Jonathan Louw declined an interview‚ referring I-Net Bridge and BDlive to the SENS statement issued by the company on Monday (25 March).
The statement said Bidvest intended to finance the deal through its own resources‚ and would make "a concerted effort to retain members of the management team". Management had appointed an independent board to weigh up the offer‚ but had yet to consider it.
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