Seeking Alpha
Biotech, foreign companies, China
Profile| Send Message|
( followers)  

Tongjitang Chinese Medicines (NYSE: TCM) will be taken private by a group comprised of its Chairman and Fosun Industrial at a price of $4.50 per ADS. The offer was originally made in April of this year. The result was never really in doubt, as Xiaochun Wang, Chairman and CEO of Tongjitang, owns 51% of the company, and Fosun controls 32%, giving them a combined 83% stake in the company.

The company expects the transaction to be closed in the first quarter of 2011. CITIC Bank International is providing financing.

Tongjitang completed an IPO on the NYSE in March of 2007 at $10 per ADS. It reached a high of $12.88, but has spent most of its history as a public company trading below the IPO price. In March 2008, Mr. Wang offered to buy the company for $10.20 per ADS, a generous 55% premium to its trading price of $6.60. That offer was eventually withdrawn without any explanation.

Since its IPO, Tongjitang has seen a decline in the fortunes of its flagship product, a TCM known as Xianling Gubao that treats the symptoms of osteoporosis. Xianling Gubao was responsible for 85% of the company’s revenues. But Xianling Gubao has had trouble with counterfeit drugs, and then was unable to hold its share of the market in the OTC osteoporosis space. As a result, Tongjitang’s share price sank to low single-digit status, and the company’s occasional forays into M&A, mostly smaller transactions, did nothing to revive investor interest in Tongjitang.

In fiscal 2007, Tongjitang earned $26 million on revenues of $80 million. In its most recent 12 months, Tongjitang reported a loss of $5 million on revenues of $76 million. It still has $55 million of the $108 million it raised in its IPO, though the market capitalization of the company had sunk to just $113 million, less that two times its cash.

Disclosure: none.

Source: Tongjitang Chinese Medicine Reaches a Deal: Delisting Was Never in Doubt