China Cord Blood: Looking at Modified Terms for Warrants

Sep.13.10 | About: China Cord (CO)

China Cord Blood Corporation (NYSE: CO) said it will offer holders of warrants the opportunity to exchange one ordinary share for every eight warrants. The warrants are due to expire on December 13, 2010, just three months from now. At present, each warrant entitles the holder to buy one share at $5. No financial terms were announced.

As China Cord Blood’s shares are currently trading at $4, close to a year-low, the warrants do not have much value currently. China Cord Blood has traded as high as $12.85 over the past 12 months.

The warrants were issued to long-time backers of the company before its migration to the New York Stock Exchange and simultaneous secondary offering (see story). That event took place in November 2009.

"The proposed exchange offer will streamline and simplify our shareholding structure as well as corporate structure," explained Ms. Ting Zheng, Chairperson and CEO of China Cord Blood Corporation.

Before any warrant exchange, China Cord Blood listed 13,202,731 warrants and 67,039,796 ordinary shares issued and outstanding.

Putting a positive spin on the proposed transaction, China Cord Blood said “The proposed exchange offer should significantly reduce the potential dilutive effect, while also removing the significant equity overhang associated with the warrants.” As few people were probably going to pay $5 to buy a $4 stock, the opposite could also be argued.

Perhaps more to the point, Ms. Ting Zheng was quoted as saying, "We strive to be a responsible public company. As we focus on delivering solid operational and financial performance, we will not overlook the interests of our shareholders. The proposed exchange offer is a balanced approach to ensure that the interests of our Company, our shareholders and warrant holders are all aligned."

China Cord Blood Corporation is the only cord blood banking company in China that has been granted two licenses, one for Beijing and the other for Guangdong. The PRC grants one license for each major metropolitan area.

In February 2010, China Cord Blood paid $20.5 million for a 20% stake in Shandong Cord Blood Bank.

Disclosure: none.