Bidvest is a global company with businesses in industries spanning banking‚ food‚ coal and car sales. Their main business interest are in food and freight distribution. Bidvest Group started as an idea to raise capital to acquire, fix and develop underperforming services business by Brian Joffe. Bidvest was established by incumbent CEO Brian Joffe and Mervyn Chipkin in 1988 with R8M.Bidvest first acquisition was Chipkins Catering Supplies. The next acquisition was the purchase of Sea World frozen foods. Bidvest on the JSE and its appetite for acquisitions has been insatiable ever since.
In 2013 Bidvest made an unsolicited offer to raise its stake in Adcock Ingram from 2.54% to 60%‚ offering R65 a share for half the stake‚ and one Bidvest share for every four Adcock Ingram shares for the rest.
Adcock Ingram is South Africa’s second-biggest pharmaceutical manufacturer and derives most of its business from South Africa. Adcock sells a full spectrum of drugs.40% of its revenue comes from over the counter medicine (including Panado, Corenza C and Bioplus) and about 37% is from prescription drugs.
It has been anticipated should Bidvest Group manages to buy pharmaceutical group Adcock Ingram will gain a new customer base in South Africa and get more business from government. Apparently Adcock’s management lacks the political connections of a giant such as Aspen Pharmacare. However, Bidvest has some foothold in selling to the state. The state’s two biggest investors, the Government Employees Pension Fund and the Public Investment Corporation (PIC), own about 30% of Bidvest together.
2.2 Case Analysis Objectives
This case study set to address the below questions in reference to the Bidvest – Adcock acquisition.
• Explaining the corporate strategy used by Bidvest in the above case. Was Bidvest successful in its endeavours?
• Why do companies merge or acquire other companies?
• Why do some mergers and acquisitions fail?
3. Definition of Corporate Strategy
Corporate strategy is a game plan of how an organisation will successfully compete and grow in the particular industry they are operating on. Diversifying plans (entering a different market or industry) also forms part of a cooperate strategy and in the process improve the various departments or units within the business. Benge (2017: Online) explains that corporate strategy has 2 major components:
• Diversification – refers to when an organisation diversify into a different industry or expanding the market
• Vertical integration – refers when an organisation enters a market that its suppliers operate on.
Mangunsong (2012: Online), is of the opinion that corporate strategy has 3 main types:
• Growth Strategy – expansion of market or product offering. This can be done through the existing business or acquiring of new business
• Stability Strategy – current business operations sustainability (maintaining current business market)
• Renewal Strategy – when the performance of an organisation declines and something out of the ordinary has to happen. Retrenchment and turnaround 3trategies are 2 types of renewal strategy.
In reference to Bidvest Group. The decision to take over the pharmaceutical group Adcock Ingram is classified under the diversification corporate strategy component and also falls on growth strategy type. (2018: Online) Bidvest “…..operate in the areas of consumer and industrial products, electrical products, financial services, freight management, office and print solutions, outsourced hard and soft services, travel and aviation services and automotive retailing.” while (2018: Online) “Adcock Ingram is a leading South African pharmaceutical manufacturer, listed on the Johannesburg Stock Exchange. The Company manufactures, markets and distributes a wide range of healthcare products. The company is a leading supplier to both the private and public sectors of the market.” This comparison of the 2 companies industries they are operating on, clearly outlines and vividly confirms the Bidvest Group corporate strategy component and type.
4. Case Study Analyses
4.1 Background on Bidvest Group
Bidvest Group is a JSE Limited listed company that its roots is grounded in South Africa. Its product offering is continuously increased through organic and acquisitive growth locally and internationally.
Bidvest strategic intent is to turn ordinary companies into extraordinary performers delivering strong and consistent shareholders return in the process while understanding that people create wealth, companies only report to it. When Tiger brand unbundle with Adcock in 2008, Adcock was left in weakened state. Bidvest saw an opportunity to turnaround Adcock earnings as they looked disappointing. Bidvest concentrates on building companies back up from a weak position.
Kahn (2013: Online),demonstrate how the organisation lived its vision and strategy with the offer for 60% of Adcock Ingram’s shares in 2013, acquire under-performing companies at their lowest ebb then fix and develop them is how Bidvest Group has managed to grow over the years.
To demonstrate the above statement, see below Figure 4.1.1, Bidvest History
Figure 4.1.1 Bidvest History. (2018: Online)
Figure 4.1.3, outlines the Bidvest Group Divisional Structure
Figure 4.1.3. Bidvest Group Divisional Overview. (2018: Online)
4.2 Values Comparison
The below table compares the values of Bidvest Group and Adcock Ingram. This is to make sense why Bidvest put all stops to acquire Adcock. Both organisations shared the same values which made the decision for a take-over make absolute sense.
Bidvest Group Values Adcock Ingram Values
Respect Have respect for People, Society and the Environment
Honesty Believe in Transparency and open Communication
Integrity Act with Integrity at all times
Accountability committed to providing Quality products and services
4.3 Strategic Direction Framework
For any organisation that has set a strategic direction the below strategic tools need to be considered, clearly defined and embodied to the rest of the organisation. Below Figure 4.3, indicate a generic strategic direction framework
Figure 4.3. Strategic Direction Framework. Meyer (2018:57)
To put context to Figure 4.3, below is Bidvest Group breakdown of their strategic direction framework.
Acquire, fix and develop underperforming companies from a weak position into extraordinary performer and in the process deliverer strong and consistent shareholder returns.
Vision To be a leading South African services, trading and distribution group
Mission subscribing to a philosophy of transparency, accountability, integrity, excellence and innovation in all our business dealings
Values Respect, Honesty , Integrity and Accountability
Strategic Intent A strong track record of consistent delivery, returns and growth
4.4 The 5’Ps Strategy
Henry Mintzberg developed this 5 P’s of strategy model in order for organisations to have 5 different and significant strategic visions. The overall company strategy is implemented more effectively with this components. Figure 4.4, illustrate the anatomy of the 5 P’s of Strategy
Figure 4.4. Anatomy of the 5 P’s of Strategy. Bhasin (2018)
Below is a breakdown the 5P’s strategy analysis of Bidvest.
Plan Business Acquisition Model. Acquire, fix and develop underperforming companies from a weak position into extraordinary performer and in the process deliverer strong and consistent shareholder returns.
Ploy When giants in cooperate are focusing on their core business competencies, Bidvest are taking a complete opposite direction in acquiring different businesses in diverse markets.
Pattern Bidvest make sure that owns almost 100% of underlying companies and the business or entities original entrepreneur stay in charge.
Position Differentiation and cost are Bidvest competitive advantage sources. They do that while living their values of respect, honesty, integrity and Accountability
Perspective Decentralised business model and talent retention being a key strategic objective allows customers to relate to the brand and current employees see value working for this organisation.