When Indian drugmaker Natco Pharma made its unexpected R75-a-share bid to pharmaceutical group Adcock Ingram’s minority shareholders, it marked the culmination of years of slow-burn tension around the pharmaceutical group’s listing
status.
The offer — a 44% premium to the last traded price before the requisite cautionary was issued — is designed to close the chapter on one of South Africa’s longest-running public listings. Aside from a brief spell under Tiger Brands’s ownership in the early 2000s, Adcock has been a fixture on the JSE since 1950. But that era now appears to be drawing to a close.
The deal structure is straightforward: Natco will acquire the 35.75% it doesn’t already own via a scheme of arrangement. Bidvest, which holds 64.25%, won’t tender its shares and will remain the controlling shareholder. The company will be delisted, jointly owned by Natco and Bidvest. No competing offer is on the table and none is expected.
Urquhart Partners, which presciently noted in an FM cover story in May that Natco’s small initial stake could signal bigger ambitions, sees little chance of a counterbid — thanks largely to the structure of the deal. As Urquhart founder Richard Cheesman explains: “Natco isn’t acquiring Adcock outright. It’s buying out the minorities to become a minority shareholder itself in an unlisted entity. Natco actually sought a larger stake, but Bidvest appears reluctant to reduce its holding. That’s not an optimal position, in my view, and it’s unlikely many other buyers would be eager to take it on.”
He adds that Natco’s interest didn’t emerge overnight. “Natco has been working on this for a long time — it first appeared on the Adcock share register a while ago. Strategically, a tie-up between Natco and Adcock makes sense given the potential synergies between the businesses.”
Cheesman also cautions against assuming the company is suddenly up for grabs. “The status quo between Bidvest and Adcock has held for a decade. Only a minority stake seems to be on offer, the agreement includes a nonsolicitation clause and the deal is expected to close relatively quickly. For these reasons, a competing bid seems unlikely.”
Instead, he suggests a more plausible development could be pressure from minority shareholders for a higher offer. “The Public Investment Corp stands out as a major shareholder that may take a view on the deal, so its response will be important to watch.”
Anchor Capital’s Sean Culverwell agrees that Natco’s move — and Bidvest’s decision to remain invested — make strategic sense. “Natco’s offer potentially brings an end to the company’s long spell in ‘minority purgatory’. Since Bidvest took control in 2019, the free float has dwindled and liquidity has dried up, so a delisting always felt inevitable,” he says.
“The surprise is the bidder. To its credit, Bidvest consistently signalled it wouldn’t 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.”
Culverwell adds that Adcock’s defensive earnings and domestic diversification still suit Bidvest’s local portfolio. While some investors had hoped Bidvest might use this opportunity to exit its stake and redirect the proceeds towards easing offshore debt concerns, Anchor believes those fears are overblown, with the group well within covenant thresholds.
For Natco, the deal provides an established foothold in an important but difficult-to-penetrate market. Founded in 1981 and listed in India, Natco Pharma is a vertically integrated group specialising in complex generics and active pharmaceutical ingredients, with particular strength in oncology, cardiology and neurology. Operating in more than 50 countries, the company combines in-house research & development, manufacturing and global marketing expertise — capabilities that could prove highly valuable to Adcock, especially in expanding its product pipeline and accelerating regulatory approvals.
It also opens up opportunities for cost synergies. Adcock still manufactures much of its product range in South Africa, but persistent local inflation, currency weakness and the rigid single exit price framework mean margin pressure is constant. Shifting some manufacturing, particularly of commoditised generics, to Natco’s lower-cost Indian facilities could improve profitability, while Adcock’s brands and distribution footprint across Southern Africa offer Natco a ready-made platform for expansion on the continent.
Natco will consolidate its 35.75% share of Adcock’s earnings, which adds about R290m to its bottom line based on trailing earnings. For Adcock, the partnership promises a deeper pipeline, improved sourcing and better access to global markets.
“The proposed transaction will allow Natco to tap into new revenue streams and expand our footprint in one of the largest and growing emerging markets, while providing a gateway to Africa,” says CEO Rajeev Nannapaneni.
Adcock CEO Andrew Hall echoes that sentiment, describing the bid as a strong vote of confidence in the company’s people, brands and business model. He highlights Natco’s innovation credentials and research capabilities, noting that the partnership will ultimately enhance access to affordable medicines for South Africans.
“Adcock will benefit from a partnership with a research-focused, innovative and vertically integrated pharmaceutical company,” he says.
Bidvest, which originally acquired control of Adcock after a long and at times acrimonious battle in the 2010s, has also endorsed the offer. Group CEO and Adcock chair Mpumi Madisa describes the deal as a logical next step to deepen Adcock’s portfolio and geographic reach. The endorsement from all three parties — Bidvest, Natco and Adcock’s board — has helped create a sense of inevitability around the deal.
The offer has also received the thumbs-up from the Adcock independent board, formed in line with the Takeover Regulations Panel, which recommended it after receiving a fair and reasonable opinion from BDO, the professional services advisory network group. Barring any unexpected regulatory delays or shareholder objections, implementation is expected within four months. Funding is guaranteed by an irrevocable R4bn bank facility arranged through Investec.
If completed, the transaction would formally end Adcock’s long run as a listed entity. Its previous relisting in 2008 followed a period of restructuring under Tiger Brands, though the current ownership structure suggests that a re-entry to the public market at some point is unlikely.
With two strategic shareholders now fully aligned, Adcock’s future lies firmly in private hands. For a company where ownership uncertainty has consistently stirred investor debate, this may finally be the dose of clarity it needs.
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