Adcock, CFR and Bidvest. Adcock obviously are scrambling here to indicate to their shareholders, which include the PIC and Bidvest (26 odd percent between them) that the CFR deal is best. The Adcock release from yesterday, this part is probably the most important:
the cash offer price of ZAR70.00 per Ordinary Share is below the current value of the proposed scheme consideration offered by CFR Pharmaceuticals S.A. ("CFR") (approximately ZAR75.00 per Ordinary Share based on the volume weighted average price of CFR shares for 30 trading days up to and including 2 December 2013, excluding the potential value of synergies that could arise from the combination of Adcock Ingram and CFR);
OK, we need a refresher. The offer to Adcock shareholders from CFR had the support of a whole host of parties (around 45 percent), including Sanlam Asset Management, Visio Capital, ABSA asset management, Stanlib, Afena Capital and 36One Asset Management, who collectively (Back in the middle of November) owned 29.3 percent of the stock back then. This process of courting Adcock has been an 8 month process (nine now) by CFR and I am pretty sure that they have invested a lot of time, not to mention money in trying to get this deal done.
The specifics of the original CFR are as follows:
A minimum of 51% and potentially up to a maximum of 64.3% of the R12,6bn total consideration will be settled in cash, with the remainder in new CFR shares.
So you will possibly get somewhere around 55 percent cash and then the balance will be new CFR shares, rough price 73.51 Rand a share. The most important question is, what do you get when you own CFR stock? The company trades at a fairly significant premium to the rest of the that Chilean market. 1.3328 times, suggests the Bloomberg page. The last annual report of CFR suggests that the Weinstein family owns 73.2 percent of the company. So what liquidity will there be for shareholders here? More importantly, how many shares in issue that side, and potentially this side? Lots. The company has annual revenues of 571 million Dollars last year, roughly 6 billion Rand, when compared to 5.445 billion Rand of Adcock. 2012 CFR profits were 80 million Dollars, around 850 million Rand, Adcock had a poor year and registered income of 587 million Rand. You are quickly starting to see why CFR cannot pull out a massive check-book and pay for all of Adcock. They cannot.
Bidvest, well they may be able to do that, their market cap of 82.454 billion Rand, profits of 4.772 billion Rand make the fund raising and the buying much easier. So why the lower stake from Bidvest? I still think that the Bidvest option is better, you get cash and not equity of an entity that is tightly held (little liquidity) and more expensive scrip than you would like. Cross border, cross cultural relationships, a local board that seemingly is not well regarded by the market, nothing really changes that much. Perhaps the Bidvest option with a newer and fresher board and management team would be a far better for shareholders. The tension is building here.