Chindex Forges JV to Boost Distributed Products Presence in China

| About: Chindex International, (CHDX)

Chindex International (NSDQ: CHDX) has entered a medical device distribution JV with Shanghai Fosun Pharmaceutical Group (SHA: 600196). If all conditions are met, Fosun will purchase $30 million of equity in Chindex, about 10% of the total, which will bring its ownership of Chindex up to 25%. Some details of the arrangement remain to be worked out.

The new JV will be called Chindex Medical Products, even though Fosun will own 51% of the enterprise. It will manufacture and distribute medical devices.

Fosun will buy almost 2 million shares of Chindex at a price of $15 per share in two closings. The first will occur in Chindex’s Q2 (Chindex operates on a March 31 fiscal year). The price is a 31% premium to the company’s previous closing price of $11.43. The second half of the transaction will take place when the JV is consummated.

Chindex has two divisions: the United Family Healthcare network, which offers premium western-style hospital services in China, and the device distribution business. Chindex is the exclusive distributor for Siemens’s color ultrasound systems and Intuitive Surgical’s robotic surgical tools. All of its distribution business will be transferred to the JV. Chindex’s operations are conducted in China, though the company is headquartered in the US.

Chindex said it would use the new capital to continue expanding its chain of hospitals in China.

Fosun International (HK: 0656), the parent to Fosun Pharma, owns 49% of Sinopharm Holdings, a major drug and device distributor in China. The other 51% belongs to China National Pharmaceutical Group Corp. (SHA: 600511). Sinopharm staged a $1 billion IPO in Hong Kong in 2009.

It was not clear which assets Fosun was transferring into the Chindex JV, though Chindex has not previously had a manufacturing capability. For its part, Chindex said Fosun would give its distributed products greater presence in China.

Chindex said the JV would have an effect on how its reports its financial results. Numbers from the Medical Products division will no longer be consolidated into its income statement. Instead, using the equity method of accounting, Chindex will report the proportional contribution from the Joint Venture. Chindex said the change will reduce the volatility traditionally inherent in its Medical Products division.

Currently, Chindex has hospital expansion projects underway in Beijing, Shanghai, Guangzhou and Tianjin. Other projects are being negotiated in Chengdu, Hangzhou, Qingdao and Dalian.

Disclosure: none.