Cipla offered to buy 100% of Cipla Medpro at R10 per share. However, among the issues complicating the decision for shareholders is Cipla Medpro's 20-year supply agreement with the Indian company. This agreement expires in November 2025 and lies at the heart of Cipla Medpro's business‚ as it secures a pipeline of generic medicines from Mumbai-based Cipla.
Despite repeated shareholder requests for sight of this contract over the years‚ it has remained confidential‚ fuelling anxieties about just how watertight the deal is.
On Tuesday (26 March) analysts once again demanded to see the contract saying it was essential for evaluating the bid. The concern is that if shareholders vote against the deal, the supply agreement might be jeopardised.
"The supply agreement is critical for a shareholder to understand what the implications of turning down the deal are‚" said Adrian Zetler‚ an equity analyst with Coronation Fund Managers. "We are boxing in the dark here. The board should publish it so shareholders can make informed decisions‚" he said.
"They should disclose it‚" agreed Aeon Investment Management's chief investment officer Asief Mohamed.
When quizzed on the issue after presenting the company's annual results for the year to December‚ Cipla Medpro's acting chief executive Johan du Preez said the directors believed the benefits of keeping the agreement confidential outweighed "the comforts of shareholders".
"There is nothing that the shareholders would find in there that would cause any concern." he said. "I think if the deal does not go ahead we would find ourselves in a position where we would need to make it available. That would be part and parcel of the road ahead‚" he said.
Business Day's previous requests to see the supply agreement have been unsuccessful‚ with Cipla Medpro saying that the only information it was prepared to make public was that contained in a memorandum published by Enaleni in October 2005 when it announced its intention to buy Cipla Medpro and list on the JSE. Enaleni later changed its name to Cipla Medpro.
The memorandum contains a two-and-a-half page summary of the supply agreement‚ with scant financial information. It says Cipla Medpro will pay a royalty of 10% to Cipla if it sources generics from other companies. It also includes generous payment terms of up to 180 days for the local company.
Mohamed said Cipla Medpro's results were disappointing and expressed scepticism about the prospects for Cipla's offer being accepted by shareholders. Cipla Medpro was trading around the R9 mark‚ he said‚ which suggested the market shared his doubts about the likelihood of the deal getting the green light. Shareholders are expected to vote towards the end of April‚ according to Du Preez.
Cipla Medpro restated its results for the 2011 fiscal year and reported a 32% slump in diluted headline earnings per share to 37.5c for the period under review‚ down from 55c a share last year. Revenue rose 30% to R2.3bn‚ but this growth was offset by an 8.5% increase in operating expenses to R832m.
"The real disappointment and warning light in the business is the (increase) in expenses‚" said Du Preez in his presentation to analysts.
The 2011 annual results had been restated on the advice of KPMG.
Source: Business Day via I-Net Bridge
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