Caps deal collapses

pharmaceutical and industrial chemical company, have collapsed after the Zimbabwe Stock Exchange-listed drug firm failed to raise the funds.
Caps intended to borrow about R90 million to buy the SA business and then embark on a rights issue later to repay the debt. This option, however, met its challenges after it became apparent that shareholders might fail to follow their rights.
Caps then secured a foreigner investor. But this was going to have serious implications on the shareholding structure given that Caps’ market capitalisation, at about US$3,6 million, was way below the value of the SA company. The investor would then end up having a majority stake in Caps Holdings.
The dilution of Caps shareholding meant the pharmaceutical group would fall under the ambit of requirements of the Indigenisation and Economic Empowerment law.
“The coming in of the foreign investor shareholder was going to dilute the current shareholding, which implies that the company would fall under foreign-owned companies required to cede at least 51 percent to locals,” said one source.
“This was certainly not going to work for the new investor.”
Last week, Caps issued a cautionary statement advising shareholders that negotiations to buy Merck had collapsed.
“Further to the cautionary statement previously published concerning a possible acquisition, Caps would like to inform its shareholders that by mutual agreement, negotiations with the party concerned have been suspended as certain conditions precedent were not met,” said Caps.
Caps chairman Mr Fred Mtanda confirmed last Thursday that talks had been discontinued due to funding challenges.
“We wanted to buy a company from South Africa but we just failed to raise the funds required,” said Mr Mtanda in an interview.
Merck provides the southern African market with pharmaceutical and chemical products. Analysts said the transaction was good for Caps in light of the projected growth of South Africa’s and regional pharmaceutical industry.
Caps, apart from the manufacture of drugs, is also involved in retail through QV Pharmacies.
The company also owns Geddes Limited, St Anne’s Hospital, Caps South Africa and QV Farmacia Limitada.
Caps said it would continue investing in the existing operations to improve its competitiveness.
It has already embarked on a re-tooling exercise in order to enhance its operations.
The sterile section of the penicillin plant, which was not operational for the entire year, is now expected to resume production in the second quarter of this year.