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Johannesburg - Pharmaceutical giant Adcock Ingram's unsolicited bid for smaller rival Cipla Medpro does not take the interests of black economic empowerment (BEE) shareholders into account.
This is according to Cipla Medpro management who, in a Monday Stock Exchange News Service (Sens) statement, said: "It is accordingly of concern that the potential offer does not take the interests of the BEE shareholders into consideration and thereby threatens the future of the company.
Shares in Cipla Medpro fell 9.6% (40c) to 375c after the announcement.
On April 9, Adcock Ingram announced its intention to buy the entire issued share capital of Cipla Medpro, at a 32% premium to its closing price on Wednesday April 8.
As of April 24, Adcock had support from 36.13% of the shares subject to the undertaking.
The offer has been turned down by institutional investors including Sweet Sensations, the empowerment business which holds 18.49% of Cipla's issued share capital.
Cipla said: "Sweet Sensations has reaffirmed to the board its utmost confidence in the current management of Cipla Medpro and the strategic relationship with Cipla India.
"Sweet Sensations firmly believes that the potential offer is unlikely to deliver the performance and returns to shareholders that could be achieved through an independent Cipla Medpro in partnership with Cipla India, with current management in place."
Cipla India
Cipla Medpro has an agreement with Cipla India which allows the local firm access to the Indian company's intellectual property until September 2025. This has been identified by analysts as a key growth source for Cipla Medpro.
Cipla India does not hold equity in the South African business, but does not support Adcock's bid.
Cipla Medpro published an extract from correspondence between Cipla Limited CE Amar Lulla and Jonathan Louw, the CEO of Adcock Ingram.
The extract reads:
"This letter serves to advise you that we, (sic) Cipla India board, will not support your bid to purchase Cipla Medpro SA Ltd now or at any time in the future.
"Firstly, Adcock Ingram is associated with companies in competition with ourselves.
"Secondly, in my view there is no compelling case to merge the two companies. I have known the people at CMSA for as long as 14 years. They are hard-working, committed, passionate and totally non-corporate. They have been loyal partners and friends and we see no reason whatsoever to change what has worked for both of us.
"Thirdly, I once again remind you that Cipla India will take whatever steps necessary to protect our reputation and rights according to the intent of the manufacturing agreement."
Word of warning
Warwick Lucas of stockbrokerage firm Imara SP Reid told Fin24.com Cipla Medpro management needs to act in the best interests of shareholders when considering this offer: "They should beware of using tactics that could precipitate a shareholder revolt."
He said if Cipla India saw Medpro as such an attractive distribution channel, they should consider putting in a counter-offer.
Lucas says his firm is sticking with its price target of 550c for Cipla Medpro.
In Monday afternoon trade, Adcock Ingram was down 1.4% (60c) while Cipla Medpro was 9.6% (40c) to 375c.
- Fin24.com
