Tongjitang Receives Buyout Offer From CEO and Fosun

| About: Tongjitang Chinese (TCM)
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Tongjitang Chinese Medicines Company (NYSE: TCM) has received a buy-out offer from a JV comprised of Mr. Xiaochun Wang, who is the company’s Chairman and CEO, and Fosun Industrial, the Hong Kong conglomerate. The JV has offered $1.125 per share or $4.50 per ADS, a modest 19% premium to the ADS price. If Tongjitang’s shareholders accept the offer, the company would once again be a privately held entity.

It is not the first time Mr. Wang has offered to buy the company. Two years ago, in March 2008, Mr. Wang offered $10.20 per ADS. That offer was withdrawn a few months later without explanation.

Shanghai Fosun Pharmaceutical (SHSE: 600196), one of Fosun’s subsidiaries, has slowly been amassing a stake in Tongjitang. As of last summer, it owned 24% of the company’s outstanding ADSs. Fosun always said its purchases were only for investment, not to gain control of the company, and it seems to have established a collegial relationship with management.

Outside commentators, however, speculated that Fosun was interested in Tongjitang’s TCM business, which would complement Fosun Pharma’s chemical-based drugs.

Tongjitang made its IPO on the NYSE in March 2007 at a price of $10 per ADS. The company had to trim its price in the IPO process after the Shanghai stock market experienced a one-day drop of 9% earlier that year. The company never experienced a big post-IPO surge in its stock price.

Since the IPO, Tongjitang’s major revenue-producing product, the TCM treatment for osteoporosis, Xianling Gubao, has experienced declining fortunes. First, Tongjitang had to fight off copy-cat competitors that infringed its patents, and then sales seemed simply to decline. Tongjitang has announced a few small M&A transaction in an effort to augment revenues, but their results were just as lackluster as Xianling Gubao’s revenues.

Tongjitang reported 2009 revenues of $70.4 million, a 7% rise, and a net loss of $600,000. It ended 2009 with $34.8 million in cash, and currently has a market capitalization of $117 million.

In February 2010, Tongjitang established a JV that paid $17.7 million to buy Guiyang Liquor Factory, a state-owned company that sells medicinal liquors. Revenues of the new acquisition were not disclosed. Tongjitang owns 95% of the JV.

Disclosure: none.