India-listed diversified pharmaceutical manufacturer Natco Pharma, which specialises in research and development, manufacturing, and marketing finished dosage formulations (FDFs) and active pharmaceutical ingredients (APIs), has tabled a R75/share offer to buy out JSE-listed Adcock Ingram’s minorities. Natco, listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) of India, operates in more than 50 countries. Adcock manufactures, markets and distributes a range of healthcare products.
The announcement was made on Wednesday (23 July), with the offer price c. 48% above Adcock’s Friday (18 July) close of R50.83/share. This could potentially bring an end to Adcock’s long spell in what we refer to as “minority purgatory”. Since Bidvest took control of the company in 2019 (Bidvest has a c. 64.25% stake), the free float has dwindled, and liquidity has dried up, so a delisting always felt inevitable. If the offer is accepted, Natco will hold a 35.75% stake in Adcock Ingram, valued at c. R4bn, and it will be delisted from the JSE.
The surprise to us is the bidder. To its credit, Bidvest consistently signalled it would not pay a premium for Adcock and has been prioritising capital to scale its offshore services platform, with a view to a separate listing reminiscent of Bidcorp. Against that backdrop, Natco’s move and Bidvest’s choice to hold both make sense to us.
Bidvest’s 64% stake is excluded from the deal, and we believe retaining it is a strategically sound move. This decision underscores Bidvest’s confidence in Adcock’s defensive earnings and domestic diversification, which still suit Bidvest’s local portfolio.
There have been some investor concerns relating to the growth in Bidvest’s offshore debt, and potential proceeds from exiting its Adcock stake could have allayed those fears. Regardless, we believe Bidvest’s debt concerns are overblown, with the Group sitting well below covenant levels.
