South Africa's Adcock shares jump as Bidvest looks to raise stake

By Tiisetso Motsoeneng JOHANNESBURG (Reuters) - Shares in struggling South African drugmaker Adcock Ingram surged more than 7 percent on Friday on news that top shareholder Bidvest Group was looking to raise its stake, a move that could trigger a full buy-out. Bidvest Chief Executive Brian Joffe, one of South Africa's top dealmakers, has been trying to take control of Adcock since March last year, seeing a chance to turn around another underperforming company and add painkillers and cough syrups to his stable of products. Bidvest is a conglomerate that spans shipping to catering and owns 34.5 percent of Adcock, South Africa's second-largest drugmaker. A document from South Africa's competition regulator seen by Reuters on Thursday said Bidvest intended to increase that to more than 50 percent. "The Bidvest bid has involved two stages. The second stage is to acquire further shares beyond the 34.5 percent, which presumably, depending on the take-up of the offer, would take Bidvest's holding to above 50 percent," the document said. Increasing its stake to 35 percent would force Bidvest to make a buy-out offer to Adcock's minority shareholders, paving the way for Joffe to take a controlling stake. Shares in Adcock, which are down about a third so far this year, were up 6.1 percent at 51.98 rand at 1233 GMT, on course for their biggest daily percentage gain in five months. A Bidvest spokesman declined to comment. Joffe went direct to Adcock shareholders in December with a 4 billion rand ($371 million) cash offer for the 34.5 percent stake, sinking a rival bid from Chile's CFR Pharmaceuticals. "If Bidvest gains complete control of the business, it would allow Joffe to make sweeping structural changes," said Kate Turner-Smith, an analyst at BPI Capital Africa, adding that Bidvest may look to increase a focus on Adcock's over-the-counter (OTC) medicines. BPI Capital Africa has a "hold" rating on Adcock shares. FOCUS ON COSTS The move would also allow Joffe to take advantage of the recent weakness in Adcock's share price. The stock is near a five-year low after flagging a nine-month loss this month. It faces strong regulatory headwinds as more than half of its products depend upon regulated price increases, which it frequently says are not enough to cover its rising costs. Under Johannesburg stock exchange rules, a bidder must offer remaining shareholders the same price that it paid to raise its stake above the buy-out threshold. Reuben Beelders, portfolio manager at Gryphon Asset Management, said Adcock was worth at least 60 rand as long as Joffe can deliver a return on equity of around 18 percent. But he played down the likelihood that Bidvest would offer a hefty premium to Adcock minorities, of which Gryphon is one. "I don't see him overpaying," Beelders said. In March 2013, Bidvest offered a 10 percent premium for a 60 percent stake in Adcock, a bid spurned by Adcock's board at the time as "opportunistic". Last May it offered a 12 percent premium for the shares it did not already own in outsourcing firm Mvelaserve. Joffe has a record of taking stakes in underperforming companies and turning them around by focusing on cash flow, capital allocation and improving distribution. He ensures his more than 300 group companies work together: offices are cleaned by Bidvest's cleaning unit and furnished by its furniture arm. Joffe this year appointed Bidvest veteran Kevin Wakeford as Adcock chief executive, tasking him with a reorganisation of the company to match Bidvest's decentralised operating model. But competition authorities blocked Bidvest from cutting jobs for a year, dealing a blow to some of his restructuring plans. Gryphon's Beelders said he believed Joffe would overcome the problems at Adcock. "I just think there's more value in the business and I'm pretty sure Brian Joffe sees that too."