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Johannesburg - South African conglomerate the Bidvest Group [JSE:BVT] offered around $665m in cash and shares for control of the country's second-largest but under-performing drugmaker Adcock Ingram Holdings
[JSE:AIP].
Adcock reaps almost all of its revenue from South Africa where it is dwarfed by local rival Aspen Pharmacare, which has made an aggressive push into overseas markets.
Sometimes called "the General Electric of South Africa" Bidvest has businesses in freight, banking and food service and operates in Europe, Asia, Australia and southern Africa.
Bidvest's founder and chief executive Brian Joffe has a reputation as a cost-cutter and for buying companies that can benefit from Bidvest's distribution network and customer base.
Adcock, known for its Panado painkillers and cold medicines, said in a statement it has not had yet had time to review the unsolicited bid.
Adcock Ingram received the bid letter at approximately 19:00 on Thursday 21 March.
The Adcock Ingram Board has constituted an independent board to consider the Bidvest letter‚ it said.
The company advised shareholders that its Board has had no opportunity to review or consider the Bidvest letter and that no negotiation has taken place between Adcock Ingram and Bidvest regarding the proposed structure‚ terms and conditions set out in the letter.
It said its Board and the company’s external advisers will consider its position and communicate its views to shareholders in due course.
"This acquisition is very much the blueprint of Bidvest," said one analyst who is not allowed to speak to the media.
"Get a solid, significant player in any industry that's underperforming, apply the Bidvest returns and cash flow generation magic to it and transform it."
Over the last 12 months, shares of Adcock have been the worst performer among the four companies in Johannesburg's Pharma & Biotech index, falling more than 5%. Rival Aspen has surged nearly 70% during the same period.
Bidvest has offered to raise its stake in Adcock to 60% from 2.5% now. Half the offer would be in cash at 65 rand per share, with the other a half a payment of one Bidvest share for every four Adcock shares.
Adcock's shares surged more than 10% to a record R63.11. At 11:40 GMT the R61.44 share price valued the offer at around 6.2bn rand ($665m).
Bidvest said it would fund the cash portion itself.
Shares of Bidvest fell 3.6% to 233.71 rand, valuing the company just shy of $8bn.
The deal would mark the latest big-ticket purchase for Joffe, the son of Lithuanian immigrants who famously built a $1m start-up into a multinational with $13bn in annual revenue.
"He's a very good operator. Very shrewd. He'll squeeze the margins wherever he can," said Abri du Plessis, a portfolio manager at Gryphon Asset Management in Cape Town.
Bidvest would pay 20% less than what Adcock should be trading at based on its most likely earnings growth trajectory, according to Thomson Reuters StarMine.
StarMine's intrinsic valuation model puts Adcock's share price at R79.06, based on an expected 6.3% five-year annual compounded growth.
Adcock has said it wants about 30% of its revenue to come from outside South Africa in the next few years. Last year it bought a portfolio of 60 medicines for India's Cosme Farma for $86m.
Adcock reaps almost all of its revenue from South Africa where it is dwarfed by local rival Aspen Pharmacare, which has made an aggressive push into overseas markets.
Sometimes called "the General Electric of South Africa" Bidvest has businesses in freight, banking and food service and operates in Europe, Asia, Australia and southern Africa.
Bidvest's founder and chief executive Brian Joffe has a reputation as a cost-cutter and for buying companies that can benefit from Bidvest's distribution network and customer base.
Adcock, known for its Panado painkillers and cold medicines, said in a statement it has not had yet had time to review the unsolicited bid.
Adcock Ingram received the bid letter at approximately 19:00 on Thursday 21 March.
The Adcock Ingram Board has constituted an independent board to consider the Bidvest letter‚ it said.
The company advised shareholders that its Board has had no opportunity to review or consider the Bidvest letter and that no negotiation has taken place between Adcock Ingram and Bidvest regarding the proposed structure‚ terms and conditions set out in the letter.
It said its Board and the company’s external advisers will consider its position and communicate its views to shareholders in due course.
"This acquisition is very much the blueprint of Bidvest," said one analyst who is not allowed to speak to the media.
"Get a solid, significant player in any industry that's underperforming, apply the Bidvest returns and cash flow generation magic to it and transform it."
Over the last 12 months, shares of Adcock have been the worst performer among the four companies in Johannesburg's Pharma & Biotech index, falling more than 5%. Rival Aspen has surged nearly 70% during the same period.
Bidvest has offered to raise its stake in Adcock to 60% from 2.5% now. Half the offer would be in cash at 65 rand per share, with the other a half a payment of one Bidvest share for every four Adcock shares.
Adcock's shares surged more than 10% to a record R63.11. At 11:40 GMT the R61.44 share price valued the offer at around 6.2bn rand ($665m).
Bidvest said it would fund the cash portion itself.
Shares of Bidvest fell 3.6% to 233.71 rand, valuing the company just shy of $8bn.
The deal would mark the latest big-ticket purchase for Joffe, the son of Lithuanian immigrants who famously built a $1m start-up into a multinational with $13bn in annual revenue.
"He's a very good operator. Very shrewd. He'll squeeze the margins wherever he can," said Abri du Plessis, a portfolio manager at Gryphon Asset Management in Cape Town.
Bidvest would pay 20% less than what Adcock should be trading at based on its most likely earnings growth trajectory, according to Thomson Reuters StarMine.
StarMine's intrinsic valuation model puts Adcock's share price at R79.06, based on an expected 6.3% five-year annual compounded growth.
Adcock has said it wants about 30% of its revenue to come from outside South Africa in the next few years. Last year it bought a portfolio of 60 medicines for India's Cosme Farma for $86m.
