CFR takeover vital to our survival - Adcock London based drug maker Adcock Ingram said a...

  

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CFR takeover vital to our survival - Adcock London based drug maker Adcock Ingram said a £1 billion takeover by CFR Pharmaceuticals of Chile, which is opposed by its biggest shareholder, was vital to its long-term survival. State pension fund Public Investment Corporation (PIC) is opposing CFR's cash-and-shares offer because of concerns about foreign control and the share component of the deal, a source familiar with the fund's thinking said earlier this month. Adcock said it needed to pursue a tie-up with an international pharmaceutical company to compete with larger rivals. With 90% of sales made at home, Adcock has been dwarfed by rival Aspen Pharmacare, which has made an aggressive push into overseas markets via acquisitions in recent years. "The continuing consolidation of the global pharmaceutical market has again challenged the long-term sustainability of Adcock Ingram's business," Adcock said. Santiago-based CFR last week said it was confident of winning shareholder support for the deal, which would create an emerging-market drugs powerhouse spanning 23 countries. The takeover needs to get backing from 75% of Adcock's shareholders in a vote next month. PIC holds about 19% of Adcock's shares. Adcock posted a worse-than- expected 17% fall in full-year profit on Thursday as the weakening of the pound made imports of chemicals used to make drugs more expensive. The pound has depreciated by about 3% against the dollar since January. Headline earnings per share (EPS) fell to 350p in the year ended September, well below a 388p estimate in a Reuter's poll of five analysts. Adcock, the country's biggest over-the-counter medicines maker, has also been squeezed as cash- strapped consumers cut the size of their purchases or move to cheaper products. The company suspended dividends as part of an agreement with its suitor CFR. Costs from the deal of around £56m, or nearly all the net profit the company made this year, are expected to weigh on Adcock's profitability or its ability to resume dividends next year. REQUIRED 2.1 Calculate the total number of shares to be acquired by CFR based on the current market value of £70 per share (4 Marks) 2.2 Assume CFR shares are currently trading at £140 per share. Determine the Exchange ratio based on market values for the proposed acquisition (3 Marks) 2.3 In light of the above article, discuss the potential gains for the offeror from the proposed acquisition (7 Marks) 2.4 Adcock Ingram has underperformed lately (for the year ended September 2022) and continues to be under pressure in terms of reduced earnings and rising costs. Furthermore, it has suspended the paying out of dividends. Discuss these implications with specific emphasis on dividend policy and related theory (11 Marks) (25 Marks) CFR takeover vital to our survival - Adcock London based drug maker Adcock Ingram said a £1 billion takeover by CFR Pharmaceuticals of Chile, which is opposed by its biggest shareholder, was vital to its long-term survival. State pension fund Public Investment Corporation (PIC) is opposing CFR's cash-and-shares offer because of concerns about foreign control and the share component of the deal, a source familiar with the fund's thinking said earlier this month. Adcock said it needed to pursue a tie-up with an international pharmaceutical company to compete with larger rivals. With 90% of sales made at home, Adcock has been dwarfed by rival Aspen Pharmacare, which has made an aggressive push into overseas markets via acquisitions in recent years. "The continuing consolidation of the global pharmaceutical market has again challenged the long-term sustainability of Adcock Ingram's business," Adcock said. Santiago-based CFR last week said it was confident of winning shareholder support for the deal, which would create an emerging-market drugs powerhouse spanning 23 countries. The takeover needs to get backing from 75% of Adcock's shareholders in a vote next month. PIC holds about 19% of Adcock's shares. Adcock posted a worse-than- expected 17% fall in full-year profit on Thursday as the weakening of the pound made imports of chemicals used to make drugs more expensive. The pound has depreciated by about 3% against the dollar since January. Headline earnings per share (EPS) fell to 350p in the year ended September, well below a 388p estimate in a Reuter's poll of five analysts. Adcock, the country's biggest over-the-counter medicines maker, has also been squeezed as cash- strapped consumers cut the size of their purchases or move to cheaper products. The company suspended dividends as part of an agreement with its suitor CFR. Costs from the deal of around £56m, or nearly all the net profit the company made this year, are expected to weigh on Adcock's profitability or its ability to resume dividends next year. REQUIRED 2.1 Calculate the total number of shares to be acquired by CFR based on the current market value of £70 per share (4 Marks) 2.2 Assume CFR shares are currently trading at £140 per share. Determine the Exchange ratio based on market values for the proposed acquisition (3 Marks) 2.3 In light of the above article, discuss the potential gains for the offeror from the proposed acquisition (7 Marks) 2.4 Adcock Ingram has underperformed lately (for the year ended September 2022) and continues to be under pressure in terms of reduced earnings and rising costs. Furthermore, it has suspended the paying out of dividends. Discuss these implications with specific emphasis on dividend policy and related theory (11 Marks) (25 Marks)

Answer rating: 100% (QA)

21 Calculate the total number of shares to be acquired by CFR based on the current market value of 70 per share Number of Shares to be Acquired Total Value of Acquisition Market Value per Share 100000... View the full answer