Cipla Medpro’s share price jumped nearly 5% to a level not seen since August 28 after the pharmaceutical company said on Monday it would embark on a process to find a new CEO following the resignation of Jerome Smith, who has been on suspension since August 15 on allegations of gross misconduct.
In the interim, Johan du Preez — a board director — will continue as acting CEO.
A total of more than 20 charges, which included unauthorised bonus payments, were scheduled for formal hearings on Monday, before the resignation notification last Friday.
According to Cipla, Mr Smith cancelled his fixed-term employment contract with immediate effect on the basis of an "irretrievable breakdown" in the working relationship with the board and alleging that he was forced to resign.
Mr Smith also indicated that he would institute legal action to claim damages in an amount which will be announced in due course. Cipla said it intended to defend this action.
Rob Towell, senior equities trader at Consilium Securities, said: "The statement (by Cipla) does remove uncertainty to the extent that the counter will have a new CEO. It remains to be seen, however, whether the company will renew its cautionary made earlier this year about a potential deal."
According to Cipla, one of the charges is one of gross misconduct and/or, dishonesty and/or serious breaches of his fiduciary duties and the company’s memorandum of incorporation (MOI), its operating procedures, the listings requirements of the JSE and the requirements of the King III corporate governance code.
Cipla said he "caused bonuses determined by him in his sole discretion to be paid to inter alia himself in the amount of R1.6m in respect of the 2010 financial year and R2m in respect of the 2011 financial year, when to his knowledge such bonuses had not been recommended by the remuneration committee and had not been approved by the board as required by the MOI, the JSE listings requirements and by law".
Mr Smith resigned on the eve of a disciplinary hearing against him, a move that analysts say may pave the way for a takeover of the local pharmaceutical company.
"A series of events has demonstrated unequivocally that the current board of Cipla Medpro — which I was required by my contract to serve — have rendered the continuation of a meaningful and trusting relationship an impossibility, and for me to attempt to continue to serve shareholders under these circumstances presents an intolerable state of affairs," Mr Smith said.
Describing the board as "malicious", Mr Smith said he was not prepared to waste money defending himself at a disciplinary hearing that had been scheduled for Monday. He declined to specify the charges laid against him by Cipla Medpro, or discuss what lay behind his conflict with the board, saying he was planning legal action. "Legal proceedings (will) be brought by me in due course in which the relevant facts and circumstances may be revealed," Mr Smith said.
Cipla Medpro’s board has remained tight-lipped about its reasons for Mr Smith’s suspension on August 15. Their action saw the share price placed under pressure and scotched talks with an undisclosed party, which industry sources believe to have been the Indian Cipla.
The company is being investigated by the Takeover Regulation Panel for the way it handled the potential deal, following a complaint from Mr Smith on behalf of shareholders.
Cipla Medpro was founded by Mr Smith 10 years ago, and is the third-biggest pharmaceutical company listed on the JSE after Aspen Pharmacare and Adcock Ingram. It was the target of a takeover bid from Adcock Ingram in 2009, and more recently industry sources say talks were under way with Mumbai-based Cipla, one of India’s biggest generic manufacturers.
"Cipla has always been a take-over target, as it has a very valuable portfolio of registered (medicines).… Although it has grown its top line by about 21% in the past five years, its expenses have grown far faster, so there is huge synergy in a possible takeover," said Chris Logan of Opportune Investments.