The offer to take Tongjitang Chinese Medicines (TCM) private will be put in the lap of Morgan Stanley to determine whether the offer represents a fair price for the company. A special committee of the Board of Directors, composed of TCM’s two independent directors, appointed Morgan Stanley Asia Limited to be their financial advisor for the transaction.
On March 10, just before making its year-end financial report, the Chairman and CEO of Tongjitang, Mr. Xiaochun Wang, and a director, Mr. Yongcun Chen, offered $10.20 for each publicly held ADS. The stock had closed the previous session at $6.60. The offer put some life into Tongjitang’s stock price, though it has remained considerably below the offer.
Investors have responded positively to the Morgan Stanley news, as though it gives evidence that the Board is taking the offer seriously. Tongjitang’s ADSs moved 49 cents higher Wednesday to $8.55, a 6% increase. However, even at this price, the ADSs are trading at a 16% discount to the buyout price.
Tongjitang has $113 million in cash and a market capitalization of $286 million (there is also $26 million in debt on the balance sheet). The company offered just under 10 million ADSs in its IPO a year ago, which was priced at $10 per share.