JSE probes claim of secret Cipla clause
July 20, 2009
By SLINDILE KHANYILE
THE JSE is investigating a complaint laid by Adcock Ingram concerning an alleged "termination right" in the supply agreement between Cipla Medpro SA (CMSA) and Cipla India, which Adcock claims was not previously disclosed to the public.
The bourse confirmed at the weekend that it was investigating the claim by the country's largest drug maker, but details were withheld because the probe was still pending.
Adcock made a R2.1 billion bid for generic drug maker CMSA, which it then aborted citing failure to obtain the support of Cipla India, the principal supplier.
Adcock Ingram chief executive Jonathan Louw said it was unviable to pursue CMSA without the guarantee of continued access to the portfolio of drugs supplied by Cipla India.
CMSA has denied the existence of a termination right.
At least two analysts and one legal expert said CMSA had done nothing wrong, regardless of any finding by the JSE that such a clause existed and was not communicated to shareholders.
Mark Ansley, a portfolio manager at Cadiz Asset Management, said he would not be surprised if such a clause existed. He noted that it was not uncommon for detailed clauses to be unknown to the public.
Undisclosed contracts tended to surface when there was corporate action, he added.
"The relationship between CMSA and Cipla India goes back many years to when the company was started. The relationship is built on trust and it would make sense for a supplier and a distributor to want protection guarantees against potentially competing products," said Ansley.
"I am not sure if this is an issue that the market should be concerned with."
Willie Coetzee, a partner in commercial and corporate law at Shepstone & Wylie law firm, said he would not comment on this specific case because he was not privy to the details, but as far as the law was concerned, there was no requirement on the company to disclose information of contract clauses.
"Even if it is a public company, all the company is required to do if it is in contract negotiations (is that) it must issue a warning," said Coetzee.
Coetzee said it would not be abnormal in a supply agreement to have such a clause.
Warwick Lucas, a senior investment analyst at Imara SP Reid, said it would be morally wrong for CMSA not to disclose the termination right if it existed, but probably not legally wrong. "Any local brand franchisee has conditions to meet," said Lucas.
One analyst who did not want to be named said all public companies had to disclose all the information and it was in bad faith not do so.
CMSA gained 2.46 percent to close at R4.16 on Friday. Adcock rose 0.3 percent to R46.35.
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