Business
Adcock Ingram and CFR revive discussions to consider synergies─── 10:38 Thu, 20 Mar 2014
South Africa - Adcock Ingram and its erstwhile suitor, CFR Pharmaceuticals, has initiated new discussions to reconsider the "synergies" the two had identified last year when they wanted to merge, the newly appointed chairman of the South African firm, Brian Joffe, said on yesterday.
This may open possibilities for Adcock to manufacture CFR products in its half-empty factories in South Africa while opening up opportunities for the Latin American firm to enter the African market. Further, it would open access for Adcock in CFR’s markets.
"What we are really looking to see is whether there are complementary products, whether we can produce some products for them, whether they can sell some of our products," said Mr Joffe, after an extraordinary annual general meeting convened to approve the remuneration of non-executive directors.
"So it’s a broad discussion on many fronts on how some of the benefits that CFR saw in Adcock can get realised."
Mr Joffe, CEO of industrial group Bidvest, was appointed chairman of Adcock last month after Bidvest acquired 34.5% of the pharmaceutical group. Bidvest and CFR contended for 10 months for control of Adcock.
Adcock’s board supported CFR’s R12.8bn takeover proposal, saying the Chilean pharmaceutical giant offered synergies that were not matched by any other offer, including Bidvest’s.
One of benefits of the deal for Adcock was that CFR could utilise some of Adcock’s excess capacity by bringing some of its products to be manufactured in South Africa. Adcock has spent R1.5bn expanding its factories and distribution channels, but has struggled to grow its pipeline.
The factories operate at less than 60% of capacity. CFR, on the other hand, has run out of capacity in its factories in South America.
The Chilean firm said it would help Adcock expand its footprint by rolling out some of Adcock’s products in Latin America, especially antiretroviral drugs. This would have helped Adcock to diversify revenue.
The fact that CFR is big on prescription drugs and Adcock is dominant in the over-the-counter (OTC) segment was highlighted as another potential synergy.
The deal collapsed because CFR did not get the support of key shareholders such as the Public Investment Corporation, which owns 22% of Adcock.
36One Asset Management health analyst Jean-Pierre Verster said that the renewed discussions between Adcock and CFR were a "good" development, proving that synergies could be realised without the firms merging. "Adcock has built up sales and distribution channels, which CFR could use to market its products in South Africa. For Adcock ... it would be able to increase the utilisation of its capacity.
"It’s a win-win situation that doesn’t need change of ownership."
Mr Joffe said second-quarter trading as at the end of last month had shown no improvement, with year-to-date consolidated revenue in effect flat on the previous corresponding period, and the Southern African business 6% behind. "The performance of the OTC and prescription generics portfolios remains of concern, exhibiting volumes significantly behind those of the corresponding period."
This may open possibilities for Adcock to manufacture CFR products in its half-empty factories in South Africa while opening up opportunities for the Latin American firm to enter the African market. Further, it would open access for Adcock in CFR’s markets.
"What we are really looking to see is whether there are complementary products, whether we can produce some products for them, whether they can sell some of our products," said Mr Joffe, after an extraordinary annual general meeting convened to approve the remuneration of non-executive directors.
"So it’s a broad discussion on many fronts on how some of the benefits that CFR saw in Adcock can get realised."
Mr Joffe, CEO of industrial group Bidvest, was appointed chairman of Adcock last month after Bidvest acquired 34.5% of the pharmaceutical group. Bidvest and CFR contended for 10 months for control of Adcock.
Adcock’s board supported CFR’s R12.8bn takeover proposal, saying the Chilean pharmaceutical giant offered synergies that were not matched by any other offer, including Bidvest’s.
One of benefits of the deal for Adcock was that CFR could utilise some of Adcock’s excess capacity by bringing some of its products to be manufactured in South Africa. Adcock has spent R1.5bn expanding its factories and distribution channels, but has struggled to grow its pipeline.
The factories operate at less than 60% of capacity. CFR, on the other hand, has run out of capacity in its factories in South America.
The Chilean firm said it would help Adcock expand its footprint by rolling out some of Adcock’s products in Latin America, especially antiretroviral drugs. This would have helped Adcock to diversify revenue.
The fact that CFR is big on prescription drugs and Adcock is dominant in the over-the-counter (OTC) segment was highlighted as another potential synergy.
The deal collapsed because CFR did not get the support of key shareholders such as the Public Investment Corporation, which owns 22% of Adcock.
36One Asset Management health analyst Jean-Pierre Verster said that the renewed discussions between Adcock and CFR were a "good" development, proving that synergies could be realised without the firms merging. "Adcock has built up sales and distribution channels, which CFR could use to market its products in South Africa. For Adcock ... it would be able to increase the utilisation of its capacity.
"It’s a win-win situation that doesn’t need change of ownership."
Mr Joffe said second-quarter trading as at the end of last month had shown no improvement, with year-to-date consolidated revenue in effect flat on the previous corresponding period, and the Southern African business 6% behind. "The performance of the OTC and prescription generics portfolios remains of concern, exhibiting volumes significantly behind those of the corresponding period."
Gross profit as a percentage of sales "remains under extreme pressure" as a result of the unfavourable revenue mix, Mr Joffe said. Rand depreciation of more than 20% in Adcock’s basket of currencies, which negatively affected imported active ingredients and other materials, and certain facilities running significantly below capacity, further contributed to the pressure.
- bdlive.co.za
