| Tue 2 Jun 2009, 7:05 | | AIP - Adcock Ingram - Withdrawal of firm intention by Adcock to acquire the |
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AIP
AIP
AIP - Adcock Ingram - Withdrawal of firm intention by Adcock to acquire the
entire issued share capital of Cipla Medpro South Africa Limited and withdrawal
of cautionary announcement
Adcock Ingram Holdings Limited
(Incorporated in the Republic of South Africa)
Registration number 2007/016236/06
Share code: AIP
ISIN: ZAE000123436
("Adcock" or the "Company")
WITHDRAWAL OF FIRM INTENTION BY ADCOCK TO ACQUIRE THE ENTIRE ISSUED SHARE
CAPITAL OF CIPLA MEDPRO SOUTH AFRICA LIMITED ("CMSA") AND WITHDRAWAL OF
CAUTIONARY ANNOUNCEMENT
- CMSA has failed to give its views on the merits of the
Proposed Transaction, despite its public undertakings to
do so
- CMSA has instead placed the stated opposition of its
principal supplier, Cipla India, at the forefront and has
attempted to discourage Adcock from proceeding with the
Proposed Transaction
- Claims have been made regarding an alleged "termination
right" which Adcock is not aware was previously disclosed
to the market. The JSE is now investigating
- In Adcock`s view, there is now no reasonable prospect of a
key suspensive condition to the Proposed Transaction being
fulfilled
- Adcock has resolved not to waive the suspensive condition
and, having obtained the consent of the SRP, is not
proceeding with the Proposed Transaction
1. Introduction
Adcock shareholders are referred to the announcement released on SENS on 9
April 2009 ("Firm Intention Announcement") advising that the Company had
delivered to the board of directors of CMSA ("CMSA Board") written notice of its
firm intention to make an offer to acquire the entire issued share capital of
CMSA ("Firm Intention Notice"), on the terms and subject to the conditions set
out in the Firm Intention Notice ("Proposed Transaction"), and to the subsequent
announcements regarding the Proposed Transaction released by Adcock on SENS on
24 April 2009, 4 May 2009 and 6 May 2009.
2. Approach adopted by CMSA
On 19 May 2009, the board of directors of Adcock ("Adcock Board") requested the
CMSA Board inter alia to respond with its view on the merits and proposed
structure of the Proposed Transaction. The CMSA Board has yet to do so,
notwithstanding its public undertakings to do so.
Instead of responding to the merits of the Firm Intention Notice, the CMSA Board
has focused attention on the stated opposition of Cipla Limited ("Cipla India")
to the Proposed Transaction with a view to discouraging Adcock and prompting a
withdrawal of the proposed offer. Adcock believes that if the CMSA Board is of
the opinion that the Proposed Transaction represents a fair and/or reasonable
opportunity for CMSA shareholders, it would be incumbent on the CMSA Board to
direct its efforts to persuade the board of directors of Cipla India ("Cipla
India Board") to reconsider its view.
Whilst Adcock has from the outset recognised the value of CMSA`s relationship
with Cipla India as its principal supplier, Adcock has remained consistent in
its approach that the Company would seek the formal support of Cipla India at
the appropriate time, appreciating that Cipla India would have an established
relationship with CMSA management. Adcock believed that the appropriate time for
such engagement would be after the CMSA Board had published its advice to CMSA
shareholders on both the merits of the Proposed Transaction and its response to
Adcock`s proposal to implement the Proposed Transaction via a scheme of
arrangement.
3. Engagement with Cipla India
Adcock`s chief executive officer, Dr Jonathan Louw, met Cipla India`s joint
managing director, Mr Amar Lulla, on several occasions over the past two years
to discuss the mutual benefit of a possible merger of Adcock and CMSA.
Immediately after the publication of the Firm Intention Announcement, Mr Lulla
was quoted in the Indian press as follows.
On 9 April the Financial Chronicle, a leading business daily in India, quoted Mr
Lulla as stating: "We have a marketing tie-up with Cipla Medpro and would
continue supplying drugs to it."
Similarly, on 10 April the Business Standard of India quoted Mr Lulla as
follows: "This development will not impact us, since we have our own supply
arrangements in South Africa and other African countries. If Adcock Ingram is
ready to continue with the existing arrangement, we will continue the supplies."
These statements were welcomed by Adcock as being consistent with Dr Louw`s
understanding of his prior discussions with Mr Lulla.
On 17 April 2009 Mr Lulla stated publicly (to Adcock`s knowledge, for the first
time) that Cipla India was not supportive of the proposed offer by Adcock. On
the same date, and minutes after Mr Lulla`s statement was released, CMSA issued
its second SENS announcement in which it also for the first time publicly
confirmed that Mr Jerome Smith, chief executive officer of CMSA, was opposed to
the proposed offer.
On 6 May 2009, Adcock shareholders were advised that Adcock had received a copy
of a letter addressed to Dr Louw by Mr Lulla ("Cipla India Letter"). The Cipla
India Letter advised Adcock that both Mr Lulla and the board of directors of
Cipla India ("Cipla India Board") did not and would not support the Proposed
Transaction.
4. Contractual relationship between CMSA and Cipla India
Based on the information publicly available at the time of the Firm Intention
Announcement, Adcock understood that the entire contractual relationship between
CMSA and Cipla India was governed solely by a written supply agreement,
concluded on or about 26 September 2005 ("Cipla India Agreement"). To Adcock`s
knowledge, the terms of the Cipla India Agreement have never been publicly
disclosed by CMSA, save for a summary of salient terms contained in a limited
information memorandum dated October 2005 ("Supply Agreement Summary"). Having
reviewed the Supply Agreement Summary and all subsequent public communications
by CMSA, Adcock was not aware of any material terms in, or subsequent material
amendments to, the Cipla India Agreement that granted any rights triggered by
the Proposed Transaction that could, if exercised, prejudice the Proposed
Transaction.
Adcock noted with concern media statements attributed to Mr Lulla that Cipla
India has the right to terminate the Cipla India Agreement upon a "change of
management" of CMSA ("Termination Right"). Adcock has also noted that CMSA has
not publicly challenged or questioned this interpretation and to the contrary
has in its SENS announcement of 4 May 2009 implicitly confirmed the risk of such
termination. It is Adcock`s view that the existence of the Termination Right
would have a material effect on the market for CMSA shares and any potential
offer for CMSA. On 19 May 2009, the Adcock Board inter alia requested the CMSA
Board to clarify this issue, however no substantive response has as yet been
received.
Adcock has formally requested JSE Limited ("JSE") to investigate whether the
Cipla India Agreement contains such a Termination Right, which would, in effect,
grant Cipla India negative control over the major operations of CMSA, and if so,
when it was agreed to. If such provision exists, Adcock has further requested
the JSE to establish whether it was properly disclosed to CMSA shareholders.
The JSE is in the process of investigating the matter.
5. Non-fulfilment of key suspensive condition
The suspensive condition pertaining to the contractual relationship between
Cipla India and CMSA is contained in paragraph 7.2.3 of the Firm Intention
Announcement:
"7.2.3 Adcock receiving written confirmation from Cipla India that the
contractual relationship between Cipla India and CMSA is governed solely by the
written supply agreement concluded between Cipla India and CMSA on or about 26
September 2005 and that such agreement will, after implementation of the
Transaction, continue in full force and effect between those parties until at
least 25 September 2025, on terms at least as favourable to CMSA as those terms
set out in Annexure 2 to the "Limited Information Memorandum" issued by CMSA
during or about October 2005, and that the Transaction will not trigger, or if
so triggered will not result in the exercise of, any rights in the hands of
Cipla India or CMSA or any other party, other than as may be approved in writing
by Adcock, provided Adcock shall be entitled to waive this condition in whole or
in part by notice in writing to CMSA;"
Given the lack of any substantive response from the CMSA Board regarding the
Proposed Transaction and Adcock`s concerns regarding the contractual
relationship between Cipla India and CMSA, Adcock wrote to Cipla India on 28 May
2009 in order to remove any uncertainty regarding the position of Cipla India in
relation to the above condition. Adcock requested Cipla India to provide the
written confirmation contemplated in the above condition 7.2.3 of the Firm
Intention Announcement.
On 30 May 2009, Cipla India issued a response to Adcock`s letter. This response
not only failed to provide the written confirmation contemplated in 7.2.3 of the
Firm Intention Announcement but also contained the following unequivocal
statements:
"It is our considered view that the proposed transaction at face value is not in
the best interests either of our business partner in South Africa or that of our
company, both presently and into the future.
If implemented, the proposal would inevitably lead to a irreparable breakdown of
the current good business relationship between our company and Cipla Medpro SA
Limited.
For that reason alone, and irrespective of any contractual niceties, we are of
the firm view that we cannot, and will not, do business with Adcock Ingram
Holdings Limited in South Africa, whether directly or through an entity
controlled by it.
For that reason we will not support the proposed transaction. Further, should it
be implemented we will do whatever it takes to preserve and further our
fundamental business philosophy."
In the light of the above, the Adcock Board is of the view that there is no
reasonable prospect of the suspensive condition contained in paragraph 7.2.3 of
the Firm Intention Announcement being fulfilled.
Therefore, taking into account all relevant circumstances, including -
- the lack of a substantive response from the CMSA
Board,
- uncertainty over the precise nature of the contractual
relationship between Cipla India and CMSA,
- Cipla India`s response to Adcock`s letter dated 28 May
2009, and
- the potential risk of retributive action by Cipla
India, in respect of its commercial relationship with
CMSA, which could undermine the rationale for the
Proposed Transaction,
the Adcock Board is of the view that the Company has been placed in an untenable
position in relation to the Proposed Transaction and that the prospect of
successfully completing a commercially viable transaction for both Adcock and
CMSA shareholders is no longer possible. Accordingly, the Adcock Board has
resolved not to waive the suspensive condition contained in paragraph 7.2.3 of
the Firm Intention Announcement.
6. Withdrawal of firm intention to make an offer
Consequent to the decision by the Adcock Board referred to in 5. above, and
having obtained the consent of the Securities Regulation Panel as required in
terms of Rule 2.3.3 of the Securities Regulation Code on Takeovers and Mergers
and the Rules of the SRP, the Adcock Board has resolved not to proceed with the
Proposed Transaction.
7. Withdrawal of cautionary
As a result of the above resolutions, it is no longer necessary for Adcock
shareholders to exercise caution in dealing in their Adcock shares.
8. Director`s responsibility statement
The Adcock Board, collectively and individually, accept full responsibility for
the accuracy of the information given and certify that to the best of their
knowledge and belief there are no facts that have been omitted which would make
any statement false or misleading.
2 June 2009
Midrand
Financial Adviser, Debt Adviser and Sponsor to Adcock
Deutsche Securities (SA) (Proprietary) Limited
Legal Advisers to Adcock
Read Hope Phillips Thomas & Cadman Inc.
Transaction Communication Adviser to Adcock
Brunswick South Africa Limited
Date: 02/06/2009 07:05:02 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
