China Traditional Chinese Medicine Holdings Announces $15.45 Billion Privatization Offer by Sinopharm Group

On the evening of February 21, China Traditional Chinese Medicine Holdings Co. Limited (hereinafter referred to as “China TCM”) issued an announcement stating that Sinopharm Group proposed to privatize China TCM through a scheme of arrangement at a cash price of HK$4.6 per share. Sinopharm Group’s offer represents a 34.11% premium over China TCM’s latest closing price, with the total consideration for the privatization proposal amounting to approximately HK$15.45 billion. China TCM has applied to the Hong Kong Stock Exchange for the resumption of trading in its shares effective from 9:00 a.m. on February 22.

It is reported that rumors regarding the privatization of China Traditional Chinese Medicine Holdings Co. Limited have circulated three times cumulatively since 2021, claiming that Sinopharm Group will take the company private. Each time such privatization rumors have spread widely in the market, the stock price of China Traditional Chinese Medicine has experienced a surge.

On January 27, 2021, market reports emerged that a consortium led by Sinopharm Group planned to take China Traditional Chinese Medicine Holdings Co. Limited private at a price of at least HK$5.10 per share. This price represented a premium of approximately 33% over the company’s average share price of HK$3.83 in the preceding month, valuing China Traditional Chinese Medicine Holdings at no less than US$3.3 billion. Following the news, the company’s share price rose by 7.03% on the day. However, there were no further developments regarding this privatization attempt at the time.

On December 7, 2022, reports emerged that Sinopharm Group was considering another attempt to privatize its subsidiary, China Traditional Chinese Medicine Holdings Co. Ltd. (WINBO DRAGON LIMITED), at a valuation of approximately $4 billion. Insiders stated that Sinopharm Group and its advisors were discussing new proposals for the potential privatization. However, on the following day, China Traditional Chinese Medicine Holdings issued an announcement to refute these rumors, stating: “The Company has learned from Sinopharm Hong Kong that, as of the date of this announcement, Sinopharm Group, after preliminary review, will not make any arrangements related to the privatization of the Company.” On the day the announcement was released, the stock price of China Traditional Chinese Medicine Holdings surged again, closing with a 16.41% gain and hitting a new high over the past five months.

On February 7 this year, sources familiar with the matter revealed that Sinopharm Group is considering a potential privatization of China Traditional Chinese Medicine Holdings Co. Limited (WINBO DRAGON LIMITED). According to these sources, Sinopharm has engaged in discussions with banks regarding financing and may also collaborate with other investors. In response, representatives from China Traditional Chinese Medicine stated, “We have not received any relevant information at this time; we will provide timely updates as further developments occur.” The heated rumors spilled over into the stock market: on the afternoon of February 7, shares of China Traditional Chinese Medicine surged, rising more than 12% intraday before closing up 9.94%.

And the “fourth rumor” turned out to be true.

According to the announcement, the board of directors of the offeror (Sinopharm Group Gongyu Limited, hereinafter referred to as “Sinopharm Group” or the “Offeror”) and the board jointly announced that on February 9, 2024, the Offeror requested the board to present to the scheme shareholders the proposed privatization of the Company, which, if approved, would result in the withdrawal of the listing status of the shares on The Stock Exchange of Hong Kong Limited. The board has reviewed the proposal and agreed to present it to the scheme shareholders.

Pursuant to the proposed terms, the Controlling Shareholder Plan Shares held by the controlling shareholder (representing approximately 32.46% of the issued share capital of China Traditional Chinese Medicine Holdings Co., Limited) shall be cancelled in consideration for the cancellation consideration payable to the controlling shareholder, namely, the allotment and issue of 1,634,705,642 Offeror Shares, credited as fully paid, to the controlling shareholder, with a value equivalent to the aggregate amount of all Controlling Shareholder Plan Shares calculated at the Cancellation Price per Plan Share; all other Plan Shares (representing approximately 67.54% of the issued share capital of China Traditional Chinese Medicine Holdings Co., Limited) shall be cancelled at the Cancellation Price of HK$4.6 per Plan Share, which shall be paid in cash; the issued share capital of China Traditional Chinese Medicine Holdings Co., Limited shall be reduced by the cancellation of all Plan Shares.

Following such reduction, China Traditional Chinese Medicine Holdings Co. Limited will issue new shares to the Offeror, equivalent in number to the Plan Shares cancelled, so as to restore the Company’s issued share capital to the amount immediately prior to the capital reduction. The reserve arising from the cancellation of the Plan Shares will be applied to fully pay up the new shares issued and credited as fully paid to the Offeror. Accordingly, China Traditional Chinese Medicine Holdings Co. Limited will become wholly owned by Sinopharm Group.

Based on the planned cancellation price of HK$4.6 per plan share (excluding plan shares held by the controlling shareholder) to be cancelled in cash, which represents a premium of approximately 34.11% over the closing price per share of HK$3.43 as quoted on the Hong Kong Stock Exchange on the last trading day, the total consideration for Sinopharm Group’s privatization proposal amounts to approximately HK$15.45 billion.

It is reported that China Traditional Chinese Medicine Holdings Co. Limited, a wholly-owned subsidiary of Sinopharm Group, serves as the core investment platform for Sinopharm’s traditional Chinese medicine (TCM) industrial segment and acts as the national exclusive distributor for “artificial musk,” a Class 1 new TCM drug, a First Prize winner for Scientific and Technological Progress in TCM, and a state-protected confidential TCM product.

China Traditional Chinese Medicine (TCM) boasts a comprehensive industrial chain that integrates research and development, manufacturing, and sales. The company offers over 800 specifications of proprietary Chinese medicines, with more than 280 included in the 2018 edition of the National Essential Medicines List. It also provides over 700 varieties of single-herb TCM formula granules and more than 400 classic compound concentrated granules (exclusively for export). Its business scope covers the cultivation and harvesting of TCM medicinal materials, TCM decoction pieces, formula granules, proprietary Chinese medicines, and the broader TCM health and wellness sector. Currently, the company employs approximately 18,000 people and operates more than 100 subsidiaries.

The company has inherited the time-honored ancestral brands established since the Ming Dynasty, including “Liang Zhonghong Wax Pill Hall,” “Feng Liaoxing,” “Tongjitang,” and “Yuan Jilin.” It owns three “China Time-Honored Brands”: “Feng Liaoxing,” “Anning,” and “Tongjitang”; five “Well-Known Trademarks of China”: “Xianling,” “Tongjitang,” “Xianling Gubao,” “Tianjiang Pharmaceutical,” and “Dezhong”; four items of Intangible Cultural Heritage: “Tongjitang Traditional Chinese Medicine Culture,” “Feng Liaoxing Rheumatism and Trauma Medicinal Wine,” “Shaolin Trauma and Pain-Relieving Plaster,” and “Yuan Jilin Ganhe Tea”; as well as ten exclusive national essential medicines: “Xianling Gubao Capsules,” “Jingshu Granules,” “Rheumatic Bone Pain Capsules,” “Qili Capsules,” “Runzao Zhiyang Capsules,” “Zaoren Anshen Capsules,” “Yupingfeng Granules,” “Biyankang Tablets,” “Jinye Baidu Granules,” and “Biejia Jian Wan.”

China Traditional Chinese Medicine Holdings Co. Limited places particular emphasis on the lawful and rational development and utilization of medicinal material resources, demonstrating distinct advantages in three key areas: the operation of artificial musk, endangered medicinal materials, and imported/exported medicinal materials. Why has this leading domestic TCM enterprise decided to undergo privatization by Sinopharm Group?

Regarding the reasons for privatization, China Traditional Chinese Medicine Holdings Co. Limited explained in its announcement:For the Company, its current function as a public listing and financing platform is limited. Due to the persistently low trading price of its shares and limited trading volume, the Company’s ability to raise funds from the capital market is constrained, making it difficult to utilize equity financing as a viable source of funding for business development and to support the Company’s development strategy. Furthermore, successful privatization would help streamline the Company’s corporate governance, enterprise structure, and shareholding structure, thereby optimizing its organizational layout.

On the other hand, for Sinopharm Group, privatizing China Traditional Chinese Medicine Holdings Co. Limited (WINBO DRAGON LIMITED) can enhance the group’s financing and strategic flexibility. This move would reduce exposure to volatility and pressure from public markets, while investors need to assess whether the privatization proposal aligns with their investment interests.

This positive development has clearly had a beneficial impact on the stock market performance of China Traditional Chinese Medicine Holdings Co. Limited.Today, China Traditional Chinese Medicine Holdings Co. Limited resumed trading with a gap-up opening. As of 10:30 a.m. on February 22, its shares surged by up to 24.52%!Let us look forward to the two companies joining hands to forge a more brilliant path in the trillion-yuan traditional Chinese medicine market.

Reference: HK Stock Decoding “Rumors Again? China Traditional Chinese Medicine Holdings Rumored to Be Privatized for the Third Time”