CIPLA India plans to acquire 100% of South Africa’s third-biggest pharmaceutical firm, Cipla Mepro South Africa, for R4.5bn in what will be one of the single biggest foreign direct investments into South Africa.
Mumbai-listed pharmaceutical group Cipla and JSE-listed Cipla Medpro South Africa said in a statement on Thursday that shareholders would be paid R10 per Cipla Medpro share on the JSE, which is an increase on the R8.55 per share it originally offered for the local company.
The offer is understood to have been sweetened following a revaluation of Cipla Medpro by analysts after the local drugmaker won a R1.4bn government drug contract.
The offer represents a premium of 35.8% to the 30-day volume average price per Cipla Medpro share for the period to November 20 last year, the day before a cautionary relating to the transaction was published.
The deal aims to strengthen Cipla Medpro’s position in the South African market, expand its manufacturing facility in Durban and support its expansion into Africa.
Cipla Medpro acting CEO Johan du Preez said although the deal was initially aimed only at selling 51% to the India-based company, "we realised it was better to do an all-or-nothing deal" rather than continue with the previous supplier-client relationship, which would have become more complex had the company remained listed with a 49% South African shareholding.
Cipla Medpro chairman Sbu Luthuli said the deal would create a more efficient pharmaceutical player and generate benefits for stakeholders.
He said Cipla India was committed to black economic empowerment and would support it in the South African company.
A shareholders’ meeting to vote on the deal was planned for April 30 this year, but talks with major shareholders indicated support for the deal, Mr du Preez said.
The aim of the deal was to grow the firm, not cut costs, he said.
"Not only will Cipla help improve our strategic positioning in South Africa, but it will also allow us to compete more effectively and grow across the African continent," Mr Luthuli said.
Cipla India CEO Subhanu Saxena said South Africa was an attractive emerging market with strong projected growth for generic drugs of about 14% a year for several years.
Cipla and Medpro have enjoyed a good relationship over the past two decades.
Cipla Medpro would be delisted from the JSE on successful completion of the deal.
Cipla Medpro employees would benefit from being able to leverage the intellectual capital and financial resources of the global Cipla organisation. In addition, employees would be able to tap into the array of career opportunities that the newly integrated organisation would offer, Mr du Preez said.
Cipla India, with a turnover higher than $1.4bn, has more than 34 manufacturing facilities across India, and manufactures more than 2,000 products in 65 therapeutic categories supplied to about 170 countries.
• India has become one of the top 10 investing countries in South Africa since 1994 and trade between the two countries is growing rapidly.
• Indian investments in South Africa include automobile, hotel and ferrochrome company Tata, hotel and breweries company UB Group, automobile firm Mahindra and a number of pharmaceutical companies, including Ranbaxy and Cipla.
• Last year, Indian call-centre multinational WNS acquired South Africa-based Fusion Outsourcing for £10m.
• Bajaj, the main Indian motorcycle manufacturer, has opened four outlets around Johannesburg.
• In September last year, the Indian government-owned Bank of India opened its first branch in Johannesburg.
• In August last year, PetroSA and India-based oil and gas company Cairn India group signed an agreement for crude oil and natural gas exploration on the west coast of South Africa.
• In 2011, bilateral trade between South Africa and India was R53.7bn, with South Africa exporting goods worth R24.4bn to India that year. It imported goods worth R29.3bn that year from India.
• A document on the Brics Summit in Durban next month says trade between the two countries is expected to reach R116bn a year by 2014.
• A number of South African companies have invested in India, including SABMiller, Sanlam, Old Mutual, Altech, Adcock Ingram and Rand Merchant Bank.
• In October last year, Sanlam acquired a 26% stake in Indian financial services company Shriram Capital for R2bn.