Cipla's SA deal rejection may scupper local takeover

JOHANNESBURG: A threat by Cipla India to end a 20-year supply deal with Cipla Medpro South Africa (CMSA) may scupper a takeover bid by Adcock

Ingram, analysts said. This comes in the wake of a statement by Cipla India joint managing director Amar Lulla that it would end its long-term drug supply agreement with CMSA if Adcock was successful in its takeover bid, as it saw the latter as a competitor. Cipla India, which does not have any stake in CMSA, is estimated to earn about 15 per cent of its export revenues from the deal with Cipla Medpro from the 35 per cent of its products, especially anti-retrovirals, which it exports to the African continent. Although Lulla said Cipla India would not oppose the attempt by Adcock to buy a majority stake in CMSA, analysts here said the deal was in jeopardy because the long-term supply agreement with the Indian pharmaceutical giant was a key component of its bid to take over CMSA. "If Adcock can't continue on similar terms and conditions that CMSA has with Cipla India, the condition precedent (set by Adcock to retain the supply agreement) won't be met and the deal will be unlikely to happen," equity analyst Jonathan Larcombe of Old Mutual Investment Group told the daily Business Report here. "But it will depend on just how Adcock intends addressing the issue with Cipla India." Nazeem Hendricks, a portfolio manager at Argon Asset Management, told Business Report that it would not make sense for Adcock to proceed with the offer if it could not have access to the Cipla India pipeline. "To me that would have been the justification for making this offer," Hendricks said. Earlier, Adcock chief executive Jonathan Louw had said that both companies could benefit from the merger, which is now turning out to be a hostile takeover bid after CMSA chief executive Jerome Smith and about 20 per cent of shareholders in CMSA turned down the offer. Adcock has said that it would be happy with 51 per cent of CMSA, where the board has decided to consider the bid.