| Tue 10 Jul 2012, 13:29 | | Adcock Ingram Hldgs Ltd - CANCELLATION OF S320329 ACQUISITION OF CERTAIN ASSETS OF COSME FARMA LABORATORIES LIMITED (INDIA) |
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AIP
CANCELLATION OF S320329 ACQUISITION OF CERTAIN ASSETS OF COSME FARMA LABORATORIES LIMITED (INDIA)
AdcockIngramHoldingsLimited
(Registrationnumber2007/016236/06)
(IncorporatedintheRepublicofSouthAfrica)
Sharecode:AIP
ISIN:ZAE000123436
("AdcockIngram"or"theCompany"or"theGroup")
ACQUISITIONOFCERTAINASSETSOFCOSMEFARMALABORATORIESLIMITED(INDIA)
1. Introduction
Adcock Ingram Healthcare Private Limited, a wholly owned subsidiary within the Adcock Ingram
Group registered in India, has reached agreement to acquire certain assets of Cosme Farma
Laboratories Limited ("Cosme"), a pan-Indian pharmaceutical company based in Goa, India (the
Transaction).CosmeisadivisionoftheCosmeGroup,?adiversifiedfamily-ownedbusiness,headed
byMrCosmeMenezes,aprominentfigureinthepharmaceuticalmarketinIndia.TheCosmedivision
hasbeenoperatingintheIndiandomesticpharmaceuticalmarketforthepast40years.
2. NatureofCosmesbusiness
Cosmeisamid-sizedsalesandmarketingpharmaceuticalbusinesswithofficesandoperationsinGoa
andMumbai,India.Cosmeisranked55thoutoftheapproximately5,000registeredpharmaceutical
companies in India, per IMS Health. It has a sales force of approximately 1,000 staff that provides
nationwidecoveragetoapproximately150,000physicians.Cosmehasdistributioncapabilitiesin27
states in India. Cosme has a portfolio of products in several therapeutic classes, key being
Gynaecology,Gastro-Intestinal,DermatologyandOrthopaedic.
3. Rationale
India is a leader and keyparticipant in the global pharmaceutical market providing global and local
pharmaceutical companies with manufacturing, regulatory, research and development capabilities.
South Africa and India are countries with strong historical and economic relationships dating back
centuries, which, coupled with the current trade agreements and strong domestic growth, makes
IndiaanattractiveinvestmentdestinationforAdcockIngram.
In 2007 Adcock Ingram formally entered the Indian market through a manufacturing joint venture
with a local Indian pharmaceutical company. In July 2011 Adcock Ingram opened a regulatory and
administrativesupportofficeinBangaloretoprovidebackofficesupporttoitsAfricanoperationsand
importantlytofacilitatetheestablishmentofadomesticpharmaceuticalbusiness.
TherationalefortheTransactionisdetailedbelow:
Accesstothehigh-growthIndianpharmaceuticalmarketwithcurrentspendonpharmaceuticals
of circa USD16 billion. The Indian pharmaceutical market is forecast by IMS to grow at a
compoundannualgrowthrateof16%from2011to2016.
Cosme has a product portfolio in growth segments, such as Dermatology and Gynaecology.
CosmeanditsproductshavebeenpresentintheIndianmarketforover40years,creatingequity
inthebrands.
Extensive sales and distribution capability across India, with access to circa 150,000 physicians,
providingastrongplatformfornewproductlaunchesandeventualexposuretoAdcockIngram
brands.
TheIndianGovernmenthasrecentlyproposedapolicytoincreasetheavailabilityoffreegeneric
medicinetoitspeople,whichifimplementedcouldchangethelivesofhundredsofmillions,and
furtherimprovetheenvironmentforgenericcompaniesoperatinginIndia.
Adcock Ingram is committed to the Indian market and will continue to invest into its sales,
distribution,manufacturinganddevelopmentcapabilitiestoprovideaworld-classinfrastructureand
products.ThiswillallowAdcockIngramtobuildontheheritagecreatedbytheMenezesfamilyand
continuetoprovidequalityandaffordablemedicinestothepeopleofIndia.?
4. CategorisationofTransaction
IntermsoftheJSEListingsRequirements,theTransactioniscategorisedasaCategory2transaction.
5. DetailsoftheTransaction
Adcock Ingram will acquire certain intangible assets, related to Cosmes domestic formulations,
exportandinstitutionalbusiness,whichwillincludebutnotbelimitedto:trademarks,pharmaceutical
dossiers,marketingknow-how,customerrelationships,supplierrelationships,andmanufacturingand
technical know-how. These intangible assets will be acquired from Cosme and two other group
companies,namelyCosmeRemediesLimitedandCosmePharmaceuticalsLimited.
Alimitednumberofmovabletangibleassetswillbeacquiredundertheagreement.
The purchase price is INR 4,800,000,000 (Indian Rupees Four Billion Eight Hundred Million) or
approximately ZAR 708 million. VAT of INR 240,000,000 (Indian Rupees Two Hundred and Forty
Million) or approximately ZAR 35 million, and stamp duty of INR 240,000,000 (Indian? Rupees Two
HundredandFortyMillion)orapproximatelyZAR35millionarepayableonthepurchaseprice.The
above amounts have been based on ZAR/INR exchange rate of 0.1474 as at Monday 9 July 2012.
(Source:Bloomberg).
Thepurchasepricewillbesettledincashwithaninitialupfrontpaymentof90%andtheremaining
10%withheldfor6monthsinanescrowaccount,assecurityforpossiblebreachesofwarranties.
TheeffectivedateoftheTransactionshallbethe5thbusinessdayfollowingthefulfilmentorwaiverof
all conditionsprecedent as contemplated in paragraph6 below, which is anticipated to be no later
than31October2012.
6. Conditionsprecedent
The Transaction is subject to the fulfilment or waiver, where applicable, of a limited number of
conditions precedent normal for a transaction of this nature, including all requisite regulatory
approvalsinbothIndiaandSouthAfricasuchas,butnotlimitedto,theSouthAfricanReserveBank,
theIndianForeignInvestmentPromotionBoardandtheCompetitionCommissionofIndia.
7. Proformafinancialeffects
TheunauditedproformafinancialeffectsoftheTransactionsetoutbelowhavebeenpreparedto
assistAdcockIngramshareholdersinassessingtheimpactoftheTransactionontheGroup`shistorical
earningspershare("EPS"),headlineearningspershare("HEPS"),netassetvalue("NAV")?pershare
andnettangibleassetvalue("NTAV")pershare.Theproformafinancialeffectsaretheresponsibility
ofthedirectorsofAdcockIngramandareprovidedforillustrativepurposesonly.
Theproformafinancialeffectshavebeenpreparedonthebasisthatthetransactionhadbeenfully
implementedon1October2011forpurposesoftheStatementofComprehensiveIncomeandasat
31 March 2012 for purposes of the Statement of Financial Position. It does not purport to be
indicative of what the consolidated financial results would have been had the Transaction been
implemented on a different date. The material assumptions are set out in the notes following the
table.Duetotheirnature,theproformafinancialeffectsmaynotfairlypresentthefinancialposition,
changesinequity,resultsofoperationsorcashflowsofAdcockIngramaftertheTransaction.
Beforethe Afterthe Percentage
Transaction(1) Transaction(2) change
EPS(cents) 198.4 197.5(3&4) -0.45%
HEPS(cents) 198.7 197.8(3&4) -0.45%
NAVpershare(cents) 1,883.5 1,883.5(5) 0%
NTAVpershare (cents) 1,457.1 1,014.5(5) -30.4%
Weightedaveragenumberofsharesinissue 168,981,608 168,981,608(6) 0%
Notes:
1. ExtractedfromAdcockIngram`spublishedandunauditedinterimresultsforthe6-monthperiod
ended31March2012.
2. BasedonthepurchasepriceoftheTransactionandCosmesunauditedresultsforthe6-month
periodended31March2012.Cosmesnetprofitbeforetaxforthe6-monthperiodisR29.1m.
3. For the purposes of calculating the pro forma Statement of Comprehensive Income, Cosmes
unaudited Indian Rupee denominated results have been translated at an exchange rate of
0.1548,beingtheaverageexchangerateforthe6-monthperiodended31March2012.
4. ProformaEPSandHEPSincludeonce-offtransactioncostsofapproximatelyR5million.
5. ForthepurposesofcalculatingtheproformaStatementofFinancialPosition,Cosmesunaudited
IndianRupeedenominatedresultshavebeentranslatedatanexchangerateof0.1484,beingthe
spotrateat31March2012.
6. The weightedaverage number of shares in issue is based on the principle that the Transaction
was effective on 1 October 2011, as extracted from Adcock Ingram`s published and unaudited
interimresultsforthe6-monthperiodended31March2012.
7. No charge for amortisation of intangible assets acquired pursuant to the Transaction has been
includedintheproformafinancialeffects.Anyintangibleassetsacquired,thataredeterminedto
havefiniteusefullives,willneedtobeamortised.Anyamortisationchargethatarisesfromthese
intangibleassetswillhavetheeffectofreducingtheproformaEPSandHEPScalculatedabove.
Baseduponthefactthatalmostallassetsbeingacquiredareintangiblebynature,anyreduction
resulting from the amortisation charge could be material in relation to the figures disclosed
above.
8. Theproformafinancialeffectshavebeenpreparedusingthesameaccountingpoliciesasthose
appliedinthemostrecentlypublishedannualfinancialstatementsofAdcockIngram.
Midrand
10July2012
Sponsor
DeutscheSecurities(SA)ProprietaryLimited
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