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Significant shareholder support for CFR’s R12,6bn acquisition of Adcock Ingram

In a cautionary renewal released on the JSE’s SENS today, shareholders and the market were informed that CFR Pharmaceuticals of Chile continues to make good progress with its plans to acquire Adcock Ingram (“Adcock”) for R12,6 billion (US$1,3 billion). If implemented, this transaction will see CFR acquire 100% of Adcock’s ordinary shares, excluding the shares held by Adcock’s broad-based BEE strategic partners and BEE staff trust (together known as the Bophelo Scheme Shares) and treasury shares.

Commenting on the progress made thus far, Dr Khotso Mokhele, Chairman of Adcock Ingram, said:
“The support received to date from shareholders, our BEE and multinational partners, as well as from the senior government representatives we have engaged, highlights the value they see in the combination. If implemented, this landmark transaction will represent one of the largest foreign direct investments in South Africa and will not only benefit our shareholders, but also our employees, customers and ultimately patients and South Africa at large.”

Shareholders representing approximately 45% of the total issued share capital of Adcock have pledged support for the transaction by providing either irrevocable commitments to vote or letters of support in favour of the scheme. This is a high level of support given the fragmented nature of the Company’s shareholder base, and only a limited number of requested shareholder undertakings are still to be received.

Whilst the Bophelo Scheme Shares are not being acquired by CFR, Adcock Ingram’s strategic BEE shareholders and its BEE staff trust have entered into agreements with CFR to ensure the retention of their ownership interests in Adcock Ingram post implementation of the potential offer, and have also provided irrevocable commitments to vote in favour of the transaction.

CFR has also reached agreement with the Swiss-based multinational supplier, Baxter Healthcare SA. Baxter has consented to the change in shareholding and has agreed to maintain its existing licensing, distribution and supply arrangements with Adcock Ingram’s Hospital Products Division. Similarly, CFR has concluded final agreement with Adcock’s Indian joint venture partner, Medreich Limited, which has consented to the change in shareholding in respect of the joint venture agreement governing Adcock Ingram India.

Indicating their support for the proposed transaction, CFR’s shareholders in Chile have authorised that the company issues the necessary CFR shares to Adcock’s ordinary shareholders. This is a signicant milestone, which begins CFR’s US$750m equity capital increase process, subject to Chilean regulatory approvals.

Chief Executive Officer of CFR, Alejandro Weinstein said: “The rationale underpinning the proposed combination remains as compelling as ever and we are delighted that this is being increasingly recognised by shareholders. Through the proposed combination, South Africa will have a major stake in, and play an important role in the development of a leading world-class pan-emerging markets pharmaceuticals business. Additionally, with planned dual listings in Santiago and Johannesburg, South Africans will also be able to share both directly and indirectly in the resulting benefits of the proposed combination of two great companies”.

If implemented, the combination of CFR and Adcock Ingram will create a uniquely diversified emerging markets pharmaceutical leader, with a presence in 23 countries, more than 10 000 employees and targeting more than two billion people across the high growth markets of Latin America, Africa, South East Asia and India.

-ENDS -

NOTES TO EDITORS

Transaction rationale, synergies and benefits to SA

The combination of Adcock and CFR is expected to unlock significant value through complementary product portfolios, business structures, geographical presence and manufacturing footprints. CFR has earmarked US$20-$30 million in new machinery and research and development for Adcock’s factories. It estimates total synergies of at least R4,4 billion (US$440 million) will be achieved.

CFR intends to roll out Adcock’s ARVs, over-the-counter and other products into the high-growth Latin American markets. While CFR will provide Adcock with access to new therapeutic areas such as oncology, anaesthesia and anti-infective hospital injectable products, Adcock will help CFR grow its presence in the diabetes, dermatology and ophthalmic areas. There will also be strong efficiencies by jointly sourcing active pharmaceutical ingredients.

While Adcock Ingram would be delisted from the JSE, CFR will be listed on the JSE by way of a secondary listing, thus enhancing South Africa’s profile as an investment destination.

Adcock will remain integral to the combined business. The Adcock brand will be preserved and extended to markets beyond South Africa. CFR will aso transfer the manufacturing of a significant number of its products to Adcock’s factories, from which it will drive exports into new markets in Latin America and South East Asia. This is expected to result in further investment in manufacturing and have a positive impact on skills, technology transfer, as well as jobs in South Africa.

Transaction structure

A minimum of 51% and maximum of 64.3% of the proposed offer price would be settled in cash and a minimum of 35.7% and maximum of 49% in new CFR shares. CFR plans to seek a secondary listing on the JSE in a first of its kind transaction in South Africa.

The offer value, based on the on the minimum cash and maximum number of new CFR shares, equates to R73.51, a 31% premium to the unaffected Adcock share price on 20 March 2013 (immediately prior to Adcock announcing the receipt of an unsolicited bid from Bidvest). This price is currently worth R76.38 based on the closing price of CFR shares on the Santiago Stock Exchange on 29 October 2013, a 36% premium to the unaffected price of 20 March.

About CFR Pharmaceuticals (www.cfr-corp.com)

Similar to Adcock Ingram, CFR’s roots lie in a family business which was started in 1922. Today it is a well-respected business listed on the Santiago stock exchange and managed by the third generation of the Weinstein family. Since 1990, under the leadership of current CEO, Mr. Alejandro Weinstein, CFR has successfully expanded beyond Chile into other countries in Latin America and other emerging markets.

Today, CFR has 14 manufacturing sites, employs more than 7000 people and has a market leading presence in Chile, Peru and Colombia. It also has operations in 12 other Latin American countries and a growing presence in other markets including Canada, the UK and Vietnam.

CFR’s businesses are organised into three main areas:
• Specialty Pharma, which specialises in chronic, semi-chronic and acute medications for sale in pharmacies under doctors’ prescription. CFR’s focus in these specialties is unique in Latin America, distinguishing it from other regional companies;
• Complex Therapeutics: specialises in drugs for the treatment of complex illnesses, with a focus on state institutions, hospitals, private clinics and complex treatment centres; and
• Health & Wellness: a line focused on over-the-counter products, nutrition, food supplements and homeopathic products.

In 2012, CFR generated revenues of US$757 million. Its market capitalisation exceeds US$2 billion.

About the Chilean Business Environment

Chile is widely accepted as an attractive business environment, as evidenced by the presence of many foreign multinational’s regional offices in Santiago. Chile is ranked 20th, immediately behind the US, in the 2012 Transparency International Corruption Perceptions Index.

Chile’s sound regulation, combined with political and economic stability, has boosted foreign direct investment. This grew by 32% to more than US $30 billion in 2012, ranking Chile in the world’s top 10 in foreign capital inflows for the first time.

In the past 20 years, Chile has recorded an average annual per capita growth of 3.8 % and per capita income almost doubled in real terms. The World Bank predicts GDP growth of 4.7% in 2013. Gross National Income per capita is US$14,280 for 2012.

The pharmaceutical market in Chile and neighbouring Latin American countries is one of the fastest growing in the world, due to rapid population growth and increasing life expectancy. According to Global Data, the total market is expected to grow at a compound annual growth rate of more than 10% over the next seven years.

About Adcock Ingram - www.adcock.com

Adcock Ingram is a leading South African pharmaceutical company which manufactures, distributes and markets a wide range of healthcare products. Adcock Ingram has an extensive portfolio of branded and generic medicines, is the market leader in over-the-counter brands, and is a major supplier of hospital and critical care products. Adcock Ingram has expanded its manufacturing and marketing expertise into the rest of Africa and India. African investments include Zimbabwe, Ghana and Kenya.

Media enquiries:

For Adcock Ingram: Brunswick
Tel: +27 11 502 7300
Marina Bidoli: +27 83 253 0478; mbidoli@brunswick.co.za
Iris Pilane: + 27 71 680 0236; ipilane@brunswick.co.za
Carol Roos: +27 72 690 1230; croos@brunswickgroup.com

For CFR: College Hill
Amelia Soares: +27 82 654 9241; amelia.soares@collegehill.co.za
Mark Garraway: +27 82 610 1226; mark.garraway@collegehill.com