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China Biologic Products, Inc. (NASDAQ:CBPO) announced a number of changes to the agreement under which it will acquire a 90% controlling interest in Chongqing Dalin Biologic Technologies Co., Ltd. Dalin currently owns a 54% stake in Qianfeng Biological Products Co., Ltd. Like China Biologic, Qianfeng is a plasma-based biopharmaceutical company.

While performing its due diligence, China Biologic found that Dalin owns only a 43.3% interest in Qianfeng instead of the 54% China Biologic originally bargained for. In May 2007, Qianfeng raised capital by selling shares and diluting Dalin's stake. The new shares were never officially recorded because an existing shareholder claimed right of first refusal. His claims were turned down by a court, though he has appealed the decision. If he succeeds in court, Dalin's stake will be further diluted to 41.3%. Apparently, the court case kept Qianfeng from registering the shares - or telling Dalin/China Biologic about the change.

China Biologic intends to go ahead with the acquisition, and it has apparently not changed the terms in any major way. However, because of the delay caused by a longer than expected due diligence procedure, China Biologic will allow the selling shareholders to keep the income generated by its ownership of the Qianfeng operation for the period from October 1, 2008 to December 31, 2008.

China Biologic said that it will still have effective control of Qianfeng because it will have four of the seven seats on the company's board of directors. It did not address the issue of paying the same amount for a reduced share of Qianfeng.

Qianfeng's operations are larger than China Biologic's. Qianfeng currently has a 9.5% market share in China's plasma products, while China Biologic produces 6.1% of the segment. The top 6 largest plasma-based biopharmaceutical companies in China, including Qianfeng, have a total market share of approximately 50%.

Qianfeng is the only operating manufacturer in Guizhou Province. It produces about 250 tons of products per year with an annual production capacity of 400 tons. Qianfeng owns 7 plasma collection stations in Guizhou, of which 6 are currently in operation.

Disclosure: none.

Source: China Biologic Settles for Smaller Stake in Qianfeng Acquisition