BRIAN Joffe's Bidvest is preparing to launch its first hostile takeover in its 25-year history, bypassing the board of Adcock Ingram and taking its offer to shareholders after being spurned by the pharmaceutical manufacturer this week.
On Tuesday, Adcock rejected Bidvest's R6.2bn bid, made up of cash and shares. Its board panned Joffe's offer as "opportunistic", lacking in detail and lacking appreciation for progress made in turning around the drug company.
On Friday the gloves came off. Bidvest announced that it did not believe there were any legal deficiencies in the offer — as Adcock had argued — and so would be bypassing the board and going straight to shareholders. It said Adcock had only raised irrelevant technical issues and there was support from Adcock's shareholders for the deal.
"It doesn't mean I'm cross, but we wouldn't have launched the bid unless we believed shareholders wanted the transaction," Mr Joffe told Business Times from Europe, where he was on business.
Bidvest has, according to Thomson Reuters data, relied on friendly takeovers in 18 previous transactions, stretching back to 1999.
When Nampak's board rejected Bidvest's advances, Joffe's company walked away. An Adcock deal would be the first by Bidvest to proceed without the blessing of the takeover target board.
Few hostile takeovers have succeeded in South Africa, with Harmony's ill-fated R48bn bid for Gold Fields in 2004 the largest to be thwarted under a mountain of red tape at the Competition Tribunal.
"We don't want to burn the bridges. What we're saying is we feel the board under these circumstances should give shareholders an opportunity to say yes or no," said Mr Joffe.
"This doesn't seem to be an argument about price, which is normally the case in these things. This seems to revolve around their ability to deliver the business."
It remains unclear whether Bidvest will simply approach the shareholders with the same offer — which amounts to about R62 an Adcock share — or sweeten the deal.
Hostilities between the two groups had been simmering before the potential deal was announced two weeks ago, when Bidvest offered to raise its stake in underperforming Adcock from 2.5% to 60%.
Bidvest wanted to publish a joint cautionary about the deal, but Adcock refused.
Adcock also appears to be throwing up obstacles at every turn. Mr Joffe said Bidvest had tried to ascertain from Adcock which company was evaluating the offer, and who its legal advisers were, to resolve issues — but to no avail.
Mr Joffe said that before it made its first announcement Bidvest already had support from close to 30% of shareholders, but these were not binding undertakings.
Adcock chairman Khotso Mokhele told Business Times the board rejected the bid after it met 15 of its shareholders in Cape Town, Pretoria and Johannesburg - representing more than 60% of its shares. He pledged that if Bidvest returned with a "firm intention", Adcock's board would look at the deal again with an open mind.
"We don't have a competent offer before shareholders. If Bidvest feels up to it, we've listed issues that need attention. If they return to the independent board with a letter that's a firm intention, then the board will - with an open mind and due diligence - look at that letter," he said.
Jean Pierre Verster, equity analyst at 36ONE Asset Management, said Bidvest was obviously trying to put pressure on the shareholders to convince the board.
"The Adcock board is playing hard to get. The tone is no longer amicable and has become hostile."
Mr Verster said Adcock, while it is expected to deliver weak earnings for the six months to March, may be on the cusp of a recovery. So the board may be trying to delay Bidvest until the profits begin to show — or another suitor pitches up.
One of the criticisms levelled at Joffe over the bid is that he knows nothing about the pharmaceutical industry.
He agrees. "Do I know much about motor cars or freight management? I've learnt all of that on the job. The fundamental thing is there are people out there who manage the processes. What I'm good at is explaining how to make money."
Mr Joffe already has a strategy he would develop with management "should they be interested in coming on board".
"We could have a pharmaceutical business, maybe partner with a leading generics company. We could add a huge amount to the business with our distribution channels and could scale up the business a lot more.
"Maybe we would have a branded products business, which would include not necessarily only over-the-counter drugs but possibly include food products."
This sort of planning reinforces the impression of Mr Joffe as a consummate deal-maker, adept at picking up distressed or underperforming businesses and fixing them.
For this reason, Bidvest has been labelled "the General Electric of South Africa" and Joffe has been ranked by Forbes magazine as one of the 20 most powerful people in African business.
Adcock Ingram fits the mould of his targets, sharply underperforming its peers. Until Bidvest launched its bid, Adcock's share price had fallen 1.9% in a year, compared to a 52% gain for Aspen and a 40% jump for Cipla Medpro.
Mr Joffe said he had read a number of research reports in the last year that had pointed out Adcock's below-par performance. To him, it was clear Adcock had got the balance wrong; it had shown the ability to manage the manufacturing process but not the business.
"And that's not what business is."
Mr Mokhele admitted that Adcock 's performance has been below par. "But, during that time, an incredible amount of work was done in this business," he said. This included R1.5bn spent on upgrading facilities.
Mr Mokhele said multinationals were becoming more confident in the group's factories and distribution capacity. "We're just about to pick up and unlock value," he said.
Genesis of a takeover
Plans were hatched for Bidvest's takeover of Adcock Ingram months ago and at first things proceeded amicably enough.
Bidvest's Brian Joffe met Adcock CEO Jonathan Louw for lunch at Pigalle in Sandton Square at the end of last year and discussion of a possible offer by Bidvest for the country's second-largest pharmaceutical manufacturer directed the "friendly chat".
Mr Joffe was impressed by what Louw had to say and his ideas about the business.
"He had some very good ideas. I think we could work well together."
Last month Louw arranged for Adcock's chairman Khotso Mokhele and financial director Andy Hall to meet Joffe, while Louw was skiing overseas.
Mr Joffe told them a letter would be on its way shortly about a bid for the group. He had wanted to publish a joint announcement, but Adcock and its advisors did not.
Then, last Thursday, a public holiday, Louw got the letter from Bidvest. It gave Adcock a short period of time to evaluate the offer — only four working days.
*This article was first published in Sunday Times: Business Times