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Johannesburg - Kagiso Asset Management says it will not support JSE-listed pharmaceuticals manufacturer Adcock Ingram's 475c/share intended bid for rival Cipla Medpro SA.
"The offer price is too low," head of research Abdul Davids told Fin24.com. Kagiso holds a 4.8% stake in Cipla Medpro SA on behalf of clients.
Davids said the offer price did not factor in the positive prospects of the relationship Cipla Medpro SA has with Cipla India.
Cipla Medpro SA is party to a long-term supply arrangement, manufacturing pharmaceutical products developed by Cipla India for the South African market until 2025.
Cipla SA's empowerment partner Sweet Sensations, which has an 18.5% stake in the company, is against the transaction. It says it wants a higher share price as the one being offered will not cover the loans taken out by Sweet Sensations to fund its holding in Cipla.
Cipla SA's board is meeting on Wednesday April 15 to decide whether it would endorse Adcock Ingram's intention to buy the company.
"We hope to get an answer by today," Adcock Ingram CEO Jonathan Louw told Fin24.com on Wednesday.
On April 9, Adcock Ingram announced its firm intention to buy all of Cipla Medpro SA, saying it would offer shareholders R2.1bn or 475c/share - a 32% premium to its closing price on Wednesday April 8.
Cipla SA's share price rose to a 12-month high of 445c/share when the deal was announced, but has subsequently retreated to about 416c a share.
A share price retreat after a takeover announcement is typically an indication that the market believes the transaction will not go through.
Management issues
To date, the healthcare giant has obtained irrevocable support from four Cipla Medpro SA shareholders holding 34% of the company's shares between them: Allan Gray, Stanlib, Sanlam Investment Management and Visio Capital Management.
While no announcement has yet been made, analysts say Rand Merchant Bank (RMB), which holds just under 2% of Cipla SA, will support the deal as it has already indicated it's prepared to assist Adcock in funding the transaction, along with Nedbank.
RMB healthcare analyst Mashuda Cassim said RMB - which is a shareholder in both Adcock Ingram and Cipla Medpro SA - had not yet been approached for a commitment to the deal: "I think 475c is a fair and reasonable offer; the Cipla board should accept the offer."
Cassim said a lower price would have been better for Adcock, but at 475c it would still add value for Adcock and shareholders.
Paul Whitburn of Blue Alpha Investment Management, which manages funds on behalf of Metropolitan Asset Management and has just over 2% of Cipla invested across some of Metropolitan's unit trusts, described the price as "fair" in current market conditions.
Whitburn said Blue Alpha sought more clarity on whether Adcock would replace management at Cipla SA and the relationship with Cipla India, should Adcock buy Cipla SA.
Cipla SA CEO Jerome Smith is highly regarded in the local pharmaceutical market and has been described by analysts as "no pushover". The relationship between Cipla management and any new people brought in by Adcock would have to be managed carefully.
Louw said that Adcock has great respect for Cipla SA management and his company would not interfere with the management team. "We would only make structural adjustments to ensure both companies work best together."
Louw told Fin24.com Adcock "would be happy to accept a 50.1% shareholding [minimum required for the deal] in Cipla.
"Strategically, we would take a long-term view and look to increasing the shareholding in future."
- Fin24.com
