SA's Adcock Ingram And Prempharm To Merge

South Africa's two largest drug firms in terms of capitalization, Adcock Ingram and Premier Pharmaceutical, are to merge their respective companies, with AI acquiring 100% of Prempharm. Based on current capitalization, the enlarged AI will be capitalized at some 5.3 billion rand ($1.17 billion) and hold around 15% of the pharmaceutical market, the largest in SA.

AI's chairman Robbie Williams and Prempharm chairman Doug Bank say the merger follows an internal pattern of consolidation in the pharmaceutical industry, and is designed to create the necessary critical mass to compete against major international players who are active in the SA market. They also believe that the merger will offer synergistic opportunities which can be effectively exploited given the complementary fit of the merged group's product ranges, which involve few areas of overlap.

AI has long been the market leader and blue-chip share, before competition in the wholesale business and the return of the Swedish multinationals slashed turnover growth. Prempharm, on the other hand, is widely regarded as the most favorably-placed of SA's listed groups to weather changes in the industry. The company has enjoyed strong operating margins; since 1989 these have increased from 18% to just over 26%. Over the same period, turnover rose 50% from 426 million rand a year to 640 million rand. While its margins are not as attractive as those of Prempharm, AI has the benefit of much higher volume. Since 1989, turnover increased from 471 million rand a year to 1 billion rand.