Key Adcock stakeholder defends thwarted CFR merger

September 2, 2014 | By Arlene Weintraub

In February, after months of transcontinental controversy driven by shareholders, Chile-based CFR and South Africa's Adcock Ingram abandoned their planned $1.2 billion merger. A few months later, Abbott ($ABT) swept in and bought CFR for $3 billion. Now, Adcock shareholder Public Investment Corp. (PIC), which owns 25.5% of the company, is forced to defend its opposition to the CFR deal, thanks to poor quarterly results at Adcock.

Its case? Opposition to the deal will pay off as investors work to clean up Adcock. And besides, CFR misrepresented its bid, PIC's chief investment officer Dan Matjila told Bloomberg.

CFR's bid for Adcock, which is South Africa's largest supplier of hospital products, fell apart after its largest shareholder, Bidvest, bought up 34.5% of its shares and blocked the deal. PIC joined the opposition after detecting that the management of Adcock had misrepresented the company's earnings outlook and its plans for what would happen after the merger, Matjila said in an interview with the news service.

"We had been told, give us your assets and in exchange we will give you paper in CFR listed on the Chile stock exchange," Matjila said in the Bloomberg interview. "We'd like to use it, create wealth for ourselves, send it to Chile and then we will probably make you participate when we declare a dividend. We were unhappy with that."

Now, Adcock is on its own and clearly facing some challenges. Last week, the company reported flat sales of 3.6 billion rand ($343 million) in the first 9 months of this year and a loss of 1.80 rand (17 cents) per share, compared with a profit of 2.72 rand (25 cents) in the same period a year ago. Bidvest's Kevin Wakeford, who took over the CEO post from Jonathan Louw in February, warned investors during Adcock's earnings call that he's "not expecting any quick fixes," Bloomberg reports.

Adcock was deeply entrenched in an expansion plan when the CFR takeover bid arrived last year. Banking on an expanding middle class across Africa, Adcock vowed it would double sales outside its home market to 1 billion rand ($92.5 million) in four years.

Bidvest CEO Brian Joffe was asked during his company's earnings call on Monday whether Bidvest would raise its stake in Adcock and take control of the company, according to Bloomberg. His answer was rather circumspect. "I think there have been some strategic errors made," Joffe said. "The medium term prospects for Adcock are there. The only question is to what extent will Bidvest participate in it."