Wrap Text
Unsolicited proposal from the Bidvest Group Limited and renewal of cautionary announcement
Adcock Ingram Holdings Limited
(Incorporated in the Republic of South Africa)
Registration number 2007/016236/06
Share code: AIP
ISIN: ZAE000123436
(“Adcock Ingram” or “the Company”)
UNSOLICITED PROPOSAL FROM THE BIDVEST GROUP LIMITED (“BIDVEST”)
REGARDING THE ACQUISITION OF 60.0% (ON A FULLY DILUTED BASIS) OF THE
ENTIRE ORDINARY ISSUED SHARE CAPITAL OF ADCOCK INGRAM, INCLUDING THE
SHARES ALREADY OWNED BY BIDVEST (“BIDVEST PROPOSAL”), AND RENEWAL OF
CAUTIONARY ANNOUNCEMENT
IMPORTANT NOTICES TO ADCOCK INGRAM SHAREHOLDERS*
1. The Independent Board of Adcock Ingram has reviewed the Bidvest
Letter together with its external advisers, consulted with senior
counsel and the Takeover Regulation Panel and engaged with the
Company’s shareholders representing almost two-thirds of the total
issued ordinary shares, both listed and unlisted, of Adcock Ingram
2. The Bidvest Letter does not constitute a firm intention by
Bidvest to make an offer to Adcock Ingram shareholders as
contemplated in the Companies Act. No firm intention announcement
has been made and no regulated timetable has been initiated
3. Bidvest did not engage with the board of Adcock Ingram
regarding the proposal of a scheme of arrangement prior to the
submission of the Bidvest Letter
4. in light of the Independent Board’s fundamental legal and
material concerns with the Bidvest Proposal, the Independent Board
will not propose a scheme of arrangement based on the Bidvest
Proposal
5. The Independent Board therefore expresses no view with respect
to value at this stage
6. The Independent Board recognises that the timing of the Bidvest
Proposal is opportunistic given the significant progress that has
been made by the Company in executing its strategic plans (including
completion of a R1.5 billion multi-year investment programme), the
benefits of which have yet to be fully realised
7. No guidance has been provided by Bidvest regarding the
potential benefits and areas of synergy that may arise from a
Bidvest-controlled Adcock Ingram in which minority shareholders may
retain a significant interest
8. Through the actions of Bidvest, the Bidvest Proposal has been
prematurely forced into the public domain, creating expectations
that a transaction may eventuate. The Independent Board is concerned
about the potential for prejudice to Adcock Ingram shareholders
9. The Independent Board will, in the interests of Adcock Ingram
shareholders, consider any initiative, from any quarter, which is
made in good faith and which could serve to promote the interests of
the Company and create value for Adcock Ingram shareholders
10. The Independent Board will continue engaging Adcock Ingram
shareholders regarding the Company’s strategic ambitions with the
overriding objective of delivering value to Adcock Ingram
shareholders
* Capitalised terms used in this section have the same meaning as
ascribed in paragraphs 1 and 2 of this announcement
1. INTRODUCTION
The shareholders of Adcock Ingram are referred to the announcement
released on SENS on Friday, 22 March 2013 regarding the receipt of a
letter from Bidvest (“the Bidvest Letter”). Adcock Ingram
shareholders are advised that the independent board of Adcock Ingram
(“Independent Board”) today submitted a letter (“Adcock Ingram
Response Letter”) to Bidvest responding to the Bidvest Letter.
The full content of the Adcock Ingram Response Letter is reproduced
in paragraph 2 below without edit or modification in the interests
of certainty and transparency. In addition, shareholders are
specifically referred to the important notices appearing at the top
of this announcement.
2. THE INDEPENDENT BOARD’S RESPONSE TO BIDVEST
The full content of the Adcock Ingram Response Letter is set out
verbatim hereunder.
“1. Introduction
1.1. We refer to the letter (“the Bidvest Letter”) and the
cautionary announcement (“the Bidvest Cautionary Announcement”)
dated 22 March 2013, transmitted by Bidvest’s advisers to the Deputy
Chief Executive Officer of Adcock Ingram on Thursday evening, 21
March 2013.
1.2. Since receiving the Bidvest Letter, the independent board of
Adcock Ingram (“Independent Board”), together with the Company’s
external advisers, have:
1.2.1. reviewed the Bidvest Proposal;
1.2.2. consulted with and obtained opinion from senior counsel
regarding the Bidvest Letter;
1.2.3. consulted with the Takeover Regulation Panel (“the Panel”);
and
1.2.4. engaged a number of Adcock Ingram’s large institutional
shareholders, representing almost two thirds of total listed and
unlisted ordinary Adcock Ingram shares in issue.
1.3. This letter sets out the Independent Board’s response to the
Bidvest Letter. In responding, however, the Independent Board
wishes to make it clear that it gives no undertaking to Bidvest in
relation thereto.
2. The Independent Board’s position
2.1. The Independent Board states upfront that the board of
directors of Adcock Ingram would, in the interests of Adcock Ingram
shareholders, consider any initiative, from any quarter, which is
made in good faith and which could serve to promote the interests of
the Company and create value for Adcock Ingram shareholders.
2.2. However, in light of the Independent Board’s fundamental legal
and material prudential concerns with the Bidvest Proposal, as
identified in this letter, the Independent Board will not propose a
scheme of arrangement (“Scheme”) on the basis of the Bidvest
Proposal.
3. Status of the Bidvest Letter
3.1. Based on the consultations and advice received, as referred to
in paragraph 1.2.2 above, the Independent Board is satisfied that:
3.1.1. only the board of directors of a company can propose a Scheme
as between the company and its shareholders (section 114 of the
Companies Act, No 71 of 2008 (“Companies Act”));
3.1.2. despite the title, content and form of the Bidvest Letter, the
Bidvest Letter does not constitute notice of a firm intention by
Bidvest to make an offer to Adcock Ingram shareholders, as
contemplated in the Takeover Regulations made in terms of the
Companies Act (“Takeover Regulations”);
3.1.3. a firm intention announcement is only required to be made when
a firm intention to make an offer has been communicated and the
offeror is “ready, able and willing” to proceed with an offer
(regulation 101 of the Takeover Regulations);
3.1.4. as Bidvest is unable to proceed with the Bidvest Proposal for
the reason given in paragraph 3.1.1 above, there is no obligation to
publish a firm intention announcement with respect to the Bidvest
Proposal; and
3.1.5. the separate announcements released by Adcock Ingram and
Bidvest on SENS on Friday, 22 March 2013 and published in the press
on Monday, 25 March 2013 do not constitute a firm intention
announcement as contemplated in the Takeover Regulations and
therefore no regulated timetable has been initiated.
3.2. Adcock Ingram shareholders need to be made aware that there is
nothing in law preventing Bidvest from withdrawing its approach at
any time and accordingly that they should view the Bidvest Proposal
as nothing more than a non-binding, indicative approach to Adcock
Ingram.
4. Bidvest’s approach
4.1. With respect to the manner of Bidvest’s approach, the
Independent Board notes the following with concern:
4.1.1. the fact that the Bidvest Letter claimed to be a firm
intention letter (which would imply that Bidvest was not only able,
but also legally bound, to follow through and make an offer) was
from the outset misleading;
4.1.2. Bidvest did not engage with the board of directors of Adcock
Ingram regarding the possibility of proposing a Scheme prior to the
submission of the Bidvest Letter at approximately 19h00 on Thursday,
21 March 2013;
4.1.3. Bidvest’s advisers gave notice at the same time that Bidvest
would be releasing the Bidvest Cautionary Announcement at 09h00 on
Friday, 22 March 2013 in the knowledge that:
4.1.3.1. the Bidvest Cautionary Announcement referred to Bidvest
having submitted a “firm intention letter” to the board of directors
of Adcock Ingram and a proposal “to acquire 60% of the issued share
capital of Adcock Ingram” without providing any further detail; and
4.1.3.2. a reference to a “firm intention letter”, given its
specific legal consequences in South African takeover law, was
likely to trigger material market activity and could result in a
false market arising if not clarified.
4.2. As a consequence of Bidvest’s actions, as outlined above, the
prudent course of action for the Independent Board was immediately
to publish the full content of the Bidvest Letter following the
release of the Bidvest Cautionary Announcement.
4.3. The Bidvest Proposal has been prematurely forced into the
public domain. There has been a material increase in both the daily
volume and value of Adcock Ingram shares traded on the JSE since 22
March 2013. Expectations have been created that a transaction with
Bidvest may eventuate. The Independent Board is therefore deeply
concerned about the potential for prejudice for Adcock Ingram
shareholders.
4.4. The Independent Board continues to take advice regarding these
events and fully reserves its rights in this regard.
5. The Independent Board’s fundamental legal and material
prudential concerns with the Bidvest Proposal
5.1. The Independent Board arrived at its position based on the
following fundamental legal and material prudential concerns with
the Bidvest Proposal.
5.2. Threshold requirements in order to propose a Scheme
5.2.1. Whilst Bidvest could have elected to make an offer directly to
Adcock Ingram shareholders by way of a general offer, Bidvest has
instead chosen a Scheme as its transaction mechanism.
5.2.2. It is implied in the Bidvest Letter that a decision by the
Independent Board to propose a Scheme is somehow routine given that
the Independent Board retains the right to either recommend or to
not recommend a Scheme to Adcock Ingram shareholders at a later
stage. This is not the case.
5.2.3. In the context of any approach with a view to an offer being
implemented by way of a Scheme, the Independent Board is required,
in terms of its fiduciary and statutory obligations, to satisfy
itself, at a minimum, that:
5.2.3.1. the proposed Scheme is lawful, competent and capable of
implementation; and
5.2.3.2. proposing the Scheme is in the best interests of the
Company and its shareholders. In this regard, the Independent Board
would have to be satisfied, inter alia, that the offeror is able and
legally bound to follow-through with the proposed offer and that the
Scheme has a reasonable prospect of completion in light of the
conditions precedent to the Scheme. Importantly, neither the
Company nor its stakeholders should be placed in a protracted period
of uncertainty prior to or after the Scheme meeting.
5.2.4. Only once the Independent Board is satisfied as to the above
matters can it responsibly propose a Scheme and thereafter appoint
an independent expert, take appropriate advice and consider whether
to recommend the terms thereof, including the proposed offer
consideration.
5.3. Conditionality and “walk-away” rights
5.3.1. The Independent Board notes the following concerns regarding
the numerous conditions to the Bidvest Proposal:
5.3.1.1. the condition in paragraph 8.1.2.1 of the Bidvest Letter
is, from the outset, incapable of being fulfilled, as should have
been evident to Bidvest from information previously published by
Adcock Ingram. Furthermore, the Independent Board notes that this
condition evidences a lack of understanding of Adcock Ingram and the
complexities of its business;
5.3.1.2. the conditions relating to confirmations to be given by
the Independent Board in relation to “no anti-competitive
practices”, “any fact or circumstance which would be material to a
reasonable party” and “no material adverse change” in paragraphs
8.1.2.3, 8.1.2.4 and 8.1.3.1 of the Bidvest Letter respectively, are
not only unacceptably wide but in the absence of objective
definitions, are vague and ambiguous, to the potential prejudice of
Adcock Ingram shareholders; and
5.3.1.3. the right to waive the fulfillment of the conditions
precedent set out in paragraph 8 of the Bidvest Letter, together
with other “walk-away” rights that Bidvest wishes to retain for
itself, including that set out in paragraph 9 of the Bidvest Letter,
afford Bidvest unilateral walk-away rights in contravention of the
Takeover Regulations.
5.3.2. In the Independent Board’s view, Bidvest is effectively
attempting to obtain warranties regarding Adcock Ingram, in a non-
consensual context.
5.3.3. The conditions precedent to the Bidvest Proposal would need to
be substantively revised in order to give the Independent Board the
necessary assurance that Bidvest will in fact proceed with a
transaction. Any provision or condition giving Bidvest the
unilateral right to withdraw contravenes the Takeover Regulations
and would need to be removed.
5.4. Uncertainty with respect to the proposed offer consideration
5.4.1. The Companies Act requires that shareholders should be given
sufficient information and sufficient time to reach a properly
informed decision regarding the terms of any proposed transaction.
5.4.2. In paragraph 4.3 of the Bidvest Letter, Bidvest sets out a
price adjustment mechanism based on Adcock Ingram’s diluted headline
earnings per share from continuing operations for the first six
months of the 2013 financial year to 31 March 2013 (“Interim
Results”) (“Price Adjustment Mechanism”).
5.4.3. Bidvest knows that the Company is currently in a closed period
and therefore would be unable to give any guidance to Adcock Ingram
shareholders regarding the Interim Results, without the Company
first having reasonable certainty as to those Interim Results. The
Interim Results are due for release on 4 June 2013 and any guidance,
if required, will be provided in line with the Company’s usual
reporting practices and the requirements set out in the JSE Listings
Requirements.
5.4.4. Given that it is not possible for Adcock Ingram shareholders
to be guided by the Company at this time, there is no certainty
regarding a key element of the Bidvest Proposal, namely the proposed
offer consideration.
5.5. Comparable offers
5.5.1. Currently, the Bidvest Proposal contemplates a Scheme between
Adcock Ingram and its ordinary shareholders only, thereby ignoring
two important stakeholder groups, namely our black economic
empowerment (“BEE”) shareholders, who hold two different classes of
unlisted ordinary share capital, as well as our employees, who are
participants in our group employee incentive schemes. Again, there
is extensive information in the public domain regarding both these
schemes.
5.5.2. Comparable offers are mandatory under the Companies Act for
each class of issued securities, as well as equity-settled employee
share incentive schemes. In addition, the Takeover Regulations also
require equitable treatment of any cash-settled incentive schemes,
including phantom schemes. The Bidvest Proposal makes no mention of
comparable offers or of the envisaged treatment of cash-settled
schemes.
5.6. The proposed top-up offer
5.6.1. In paragraph 4.5 of the Bidvest Letter, Bidvest proposes, as a
term of the Scheme, that only those Adcock Ingram shareholders
voting in favour of the Scheme will have the right to participate in
a proposed top-up offer (“the Proposed Top-up Offer”), whereby those
Adcock Ingram shareholders can require Bidvest to acquire more of
their Adcock Ingram shares, up to a maximum of 15%, in exchange for
additional shares in Bidvest.
5.6.2. The Proposed Top-up Offer appears to give rise to preferential
treatment of those Adcock Ingram shareholders who vote in favour of
a Scheme versus those that do not by virtue of the right to
participate in a Proposed Top-up Offer. This feature of the Bidvest
Proposal may contravene the non-discrimination provisions of the
Companies Act, which requires equality of treatment for all
shareholders, and could also be viewed as an attempt to induce
Adcock Ingram shareholders to vote in favour of the Scheme.
5.7. Regulatory risk
5.7.1. The Bidvest Proposal provides no information regarding the
prospects of successful fulfillment of the condition contained in
paragraph 8.1.1 of the Bidvest Letter relating to regulatory
approvals.
5.7.2. The Independent Board will, if and when required, assess the
regulatory risks attendant to the Bidvest Proposal. Extensive
regulatory conditions introduce the risk, firstly, of failure and,
secondly, an extended period of uncertainty for shareholders. The
Independent Board’s concern is heightened by the fact that Bidvest
has unilaterally reserved the right to extend the date for
fulfillment of the conditions precedent in paragraph 8 of the
Bidvest Letter.
5.7.3. The Independent Board will therefore require full disclosure
of all regulatory hurdles anticipated by Bidvest, together with all
relevant information regarding the prospects of such regulatory
approvals being forthcoming, including all relevant opinions.
5.8. Cash confirmation
5.8.1. The Panel has confirmed that no irrevocable bank guarantee (as
required under the Takeover Regulations) confirming the cash portion
of the proposed offer consideration was submitted by Bidvest for
either review or approval prior to submission of the Bidvest Letter.
This represents an additional deficiency in Bidvest’s approach,
further confirming that the Bidvest Letter falls short of the
requirements of a “firm intention letter” and that no firm intention
announcement was possible immediately following submission of the
Bidvest Letter and publication of the Bidvest Cautionary
Announcement.
5.8.2. The Independent Board would require an irrevocable bank
guarantee, approved by the Panel, covering the full cash portion of
any offer.
6. Important commercial matters that should have already been
addressed by Bidvest
6.1. In addition to the matters identified above, the Independent
Board notes below a number of important commercial matters that
would typically have been addressed in detail by a potential offeror
but that are absent from the Bidvest Proposal.
6.2. Strategic rationale and the interests of minority shareholders
6.2.1. In the context of Adcock Ingram’s medium-term strategic
agenda, the Independent Board recognises that the timing of
Bidvest’s approach is opportunistic.
6.2.2. Through a challenging trading environment, exacerbated by
continued Rand weakness, Adcock Ingram has remained focused on its
key strategic priorities, including:
6.2.2.1. being a low cost producer through inter alia
revitalising the Company’s underinvested infrastructure and product
reformulation;
6.2.2.2. growing in South Africa by retaining market leadership
in key areas, gaining market share in Government tender awards,
continuing to build a robust product pipeline and further developing
the Company’s multinational partner network; and
6.2.2.3. growing the Company’s pipeline and presence outside of
South Africa, as part of the Company’s three horizons of growth
strategy, namely South Africa, sub-Saharan Africa and India.
6.2.3. In this regard, the Company has made significant progress in
the following areas, the benefits of which have yet to be realised
by Adcock Ingram shareholders:
6.2.3.1. substantial R1.5 billion multi-year investment programme
to upgrade the Company’s manufacturing facilities and distribution
infrastructure to world-class standards, including the introduction
of South Africa’s first high-volume liquids facility, is now
complete;
6.2.3.2. reformulation of certain products has happened, reducing
cost, complexity and regulatory risk;
6.2.3.3. significant Government tender wins have occurred across
the business, including a four-fold increase in pharmaceutical
tablet tenders, an increase in Critical Care tenders to 85% of all
of Government’s requirements and a recent increase in the Company’s
share of Government’s anti-retroviral requirements; and
6.2.3.4. acquisitions have been successfully completed in both
Ghana and India.
6.2.4. The Bidvest Letter provides little guidance for Adcock Ingram
shareholders regarding either the strategic rationale for the
acquisition of Adcock Ingram or the potential benefits arising
therefrom.
6.2.5. In light of the proposal to keep Adcock Ingram listed, with a
significant minority interest, and especially given that Bidvest has
no experience in the manufacturing or marketing of pharmaceutical
products or managing the attendant regulatory regime, the
Independent Board would expect Bidvest to provide clear guidance to
both it and Adcock Ingram shareholders regarding the following:
6.2.5.1. how Bidvest intends to support or change the strategic
direction of the Company;
6.2.5.2. what potential benefits, including potential areas of
synergy, have been identified or are anticipated as a consequence of
Adcock Ingram forming part of the Bidvest group;
6.2.5.3. what products and services Bidvest plans to provide
Adcock Ingram from elsewhere in the Bidvest group, and vice versa,
and how Bidvest intends to protect the interests of Adcock Ingram
minority shareholders in such arrangements;
6.2.5.4. how Bidvest plans to maintain and advance Adcock
Ingram’s transformation agenda, including protecting the interests
of its black economic empowerment (“BEE”) partners and
beneficiaries;
6.2.5.5. how Bidvest intends to ensure continuity and stability
given that Adcock Ingram operates in a highly regulated environment
where relationships with Government agencies, licensors and
suppliers are key; and
6.2.5.6. how Bidvest would seek to assure Adcock Ingram’s
multinational partners that their service needs will continue to be
met.
6.3. Proposed offer consideration
6.3.1. As already stated, the Independent Board is not obliged to
comment on the proposed offer consideration at this time under the
Companies Act.
6.3.2. The Independent Board notes that the following factors will be
important if and when the Independent Board is required to consider
value:
6.3.2.1. given the uncertainty in the proposed cash and shares
offer mix, the share component of the proposed offer consideration
will need to be carefully considered in arriving at the appropriate
value to be ascribed to Adcock Ingram shares;
6.3.2.2. the value to be ascribed on the up to 40% of Adcock
Ingram shares that will continue to be held by remaining Adcock
Ingram shareholders will require an understanding of the potential
value of synergies and other benefits to be derived by remaining
Adcock Ingram shareholders as a consequence of Bidvest being the
controlling shareholder; and
6.3.2.3. the yet to be realised benefits arising from the
progress that has been made in executing Adcock Ingram’s strategic
plans.
7. Adcock Ingram shareholder support
7.1. The Bidvest Letter states that “Bidvest has approached, and
received, support in favour of the Scheme from Shareholders holding
approximately 28% (twenty eight percent) of the issued and listed
share capital of AIH”.
7.2. Given there is no reference in the Bidvest Letter to written
irrevocable commitments having been obtained from Adcock Ingram
shareholders, the Independent Board assumes that no irrevocable
commitments have been received. This assumption has been confirmed
in the recent discussions held with Adcock Ingram shareholders
referenced in paragraph 1.2.4 above.
7.3. The Independent Board would expect Bidvest to clarify the
exact nature of the support received from Adcock Ingram shareholders
to date.
8. Conclusion
8.1. The Independent Board reiterates that it will consider any
initiative, from any quarter, which is made in good faith and which
could serve to promote the interests of the Company and create value
for Adcock Ingram shareholders.
8.2. Whilst the Independent Board recognises that the timing of
Bidvest’s approach is opportunistic, given the substantial progress
that has been made in executing the Company’s strategic plans, the
Independent Board retains an open mind regarding any revised
proposal that Bidvest may wish to submit that addresses the concerns
set out in this letter.
8.3. In the interests of certainty, however, speedy resolution of
this matter is desirable for all stakeholders. The Independent
Board therefore urges Bidvest, as soon as possible, either to
respond with a revised proposal that addresses the deficiencies
identified in this letter or to confirm withdrawal of its approach.
8.4. In the interim, the Independent Board will continue engaging
with Adcock Ingram shareholders regarding the Company’s strategic
ambitions with the overriding objective of delivering value to
Adcock Ingram shareholders.”
3. RENEWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are advised to continue to exercise caution when
dealing in the Company’s securities until a further announcement is
made.
For media enquiries:
Brunswick
Tel: +27 11 502 7300
Kieron Stevenson
+27 72 610 8793
Rob Pinker
+27 83 326 7794
Carol Roos
+27 72 690 1230
Midrand
2 April 2013
Financial adviser
Deutsche Bank
Legal advisers
Read Hope Phillips Attorneys
Public relations adviser
Brunswick
Sponsor
Deutsche Securities (SA) Proprietary Limited
Deutsche Securities (SA) Proprietary Limited (“Deutsche Bank”), a
non-bank member of the Deutsche Bank Group, is acting for Austin and
no one else in connection with the Bruno Proposal and will not be
responsible to anyone other than Austin for providing the
protections afforded to clients of Deutsche Bank or for providing
advice in relation to the Bruno Proposal.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements within this announcement may be considered
forward looking. Although Adcock Ingram believes that the
expectations reflected in such forward looking statements are
reasonable, no assurance can be given that such expectations will
prove to be correct. Adcock Ingram does not undertake any obligation
to publicly update or revise any of the information given in this
announcement that may be deemed to be forward looking.
Date: 02/04/2013 02:24:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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