Shanghai Pharma poised to become China's second largest drug firm
By Karl Zhong
Shanghai. October 19. INTERFAX-CHINA - Shanghai Stock Exchange-listed Shanghai Pharmaceutical Co. Ltd. will become China's second largest pharmaceutical company as part of a complex government-backed restructuring plan to optimize the company's competitiveness, the firm announced on Oct. 16.
Shanghai Pharma will acquire Shanghai Industrial Pharmaceutical Investment Co. Ltd., which is a subsidiary of Shanghai Industrial Holdings Ltd., as well as sister company Shanghai Zhongxi Pharmaceutical Co. Ltd. through a share swap. Shareholders of Industrial Pharma will receive 1.61 shares of Shanghai Pharma for each Industrial Pharma share held, whereas shareholders of Zhongxi Pharma will receive a 0.96 share of Shanghai Pharma for each Zhongxi Pharma share held. Shanghai Pharma will issue 799.55 million new shares for the share swap.
In addition, Shanghai Pharma Co. Ltd. will issue 455 million new shares to its parent company Shanghai Pharmaceutical (Group) Co. Ltd. to acquire RMB 5.39 billion ($789.17 million) worth of pharmaceutical assets including 100 percent shareholdings in both Shanghai Sine Pharmaceutical Corp. Ltd. and Shanghai Sunve Pharmaceutical Co. Ltd. as well as a 30 percent stake in Shanghai Squibb Pharmaceuticals Co. Ltd.
Finally, Shanghai Pharma intends to issue 169.03 million new shares to Shanghai Shangshi Group Co. Ltd. at a deal price of approximately RMB 2 billion ($292.83 million). Shanghai Pharma will then put the cash towards acquiring pharmaceutical assets from Shanghai Industrial including a 70.41 percent stake in Mergen Biotech Ltd. and a 9.28 percent stake in Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Co. Ltd.
The restructuring will raise Shanghai Pharma's total outstanding shares to 1.99 billion shares from its existing 569.17 million shares. Its total assets will also exceed RMB 20 billion ($2.93 billion).
It is carried out as part of Shanghai Municipality's biopharmaceutical industry development plan which was issued in August this year and stipulates that the government will restructure Shanghai Pharma to improve its product portfolio so that the company will achieve RMB 45 billion ($6.59 billion) in sales revenue by 2012.
Following the restructuring exercise, Shanghai Pharma will operate a complete industrial chain from drug research and development (R & D) and manufacturing to distribution and retail. Previously, the company mainly engaged in drug distribution.
It will also become China's second largest pharmaceutical company after China National Pharmaceutical Group Corp. (Sinopharm), operating the third largest pharmaceutical manufacturing business and second largest distribution business in China.Presently, Sinopharm is undergoing a merger with China National Biotec Group (CNBG) as supervised by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) in Beijing.
"For a start, it will be vital to see if Shanghai Pharma can achieve a smooth integration of its pharmaceutical businesses and human resource assets," Chen Yu, a pharmaceutical analyst with Xinhua Assets Investment Co. Ltd., told Interfax on Oct. 16.
Faced with the impending merger between Sinopharm, which is currently the largest distributor in China, and CNBG, which is China's largest biotechnology company, Shanghai Pharma will have to step up to improve its product competitiveness, according to Chen.
"As it appears that the SASAC is intent on creating large domestic companies through mergers and acquisiton (M & A), we can surely expect more pharmaceutical consolidation to take place in China soon, for instance, China Resources (Holdings) Co. Ltd. and China General Technology (Group) Holding Ltd. will potentially conduct acquisitions soon," Chen added.