Cipla to bid for control of SA affiliate

Nov 21 2012 16:32
Johannesburg/Mumbai - Drugmaker Cipla plans to offer $215m for a majority stake in South Africa's Cipla Medpro to strengthen its presence in Africa's fast-growing market for cheap, generic versions of branded drugs.

The proposed bid for a 51% stake in the drug company highlights international pharmaceutical firms' growing interest in the continent, particularly as a market for low price versions of medicines that are off patent.

Cipla, which supplies the bulk of Cipla Medpro's drugs but has so far not owned a stake in the business, sells generic drugs to treat HIV and cancer in emerging markets.

The proposal also highlights the rise of so-called "south-south" deals, where Indian and Chinese firms buy into Africa, lured by its rising incomes and a surging population.

"Like most industries with a heavy focus on developed markets, pharmaceuticals are struggling to find growth. Many are looking to Africa to build up their distribution pipeline," said Nic Norman-Smith, chief investment officer at Lentus Asset Management in Johannesburg.

"It's not surprising that Cipla are trying to consolidate their position in South Africa," he added.

British drugs giant GlaxoSmithKline is also ramping up its business in Africa, aiming to lift sales volume over the next five years by cutting prices.

Cipla plans to offer R8.55 a share for a 51% stake in Cipla Medpro, the Cape Town-based firm in a statement. Cipla Medpro said it would express a view to shareholders on the Indian firm's proposal when it had received a firm offer.

The proposed offer, worth R1.9bn according to Reuters calculations, is 11% above Cipla Medpro's closing share price on Tuesday and values the company at around R3.8bn.

Cipla said it would fund the deal via its own cash.

Shares of Cipla Medpro surged 8.6% to R8.35. In India, shares of Cipla were up 2.5%.
20% growth

By revenue, Cipla Medpro has a compound annual growth rate of around 20%, according to Thomson Reuters data.

The supply deal between the two firms was spearheaded by Cipla Medpro founder and former chief executive Jerome Smith, who quit last month following charges of gross misconduct for approving pay rises and bonuses for himself without board approval.

There had been some speculation Smith's departure could impact Cipla Medpro's relationship with the Indian company.

Cipla director S. Radhakrishnan told Reuters the Indian firm had looked into the matter before making its offer.

"Obviously we did diligence to understand what the implications are and how it will impact the company and we are satisfied," he said.

In one of the biggest deals involving India and Africa, Indian telecom Bharti in 2010 sealed a $9bn acquisition of the African operations of Kuwait's Zain , while Chinese firms have been aggressive buyers of everything from banks to mining assets on the continent.

Cipla Medpro is being advised by the investment banking arm of South Africa's Absa, while Morgan Stanley is advising India's Cipla.



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