MBK, which is most closely associated with partner Michael Kim who is ex-Carlyle, is making the offer in consortium with members of the management team of AsiaPharm, executive chairman, Liu Dianbo, and executive directors, Yuan Huixian and Yang Rongbing. The controlling shareholders of AsiaPharm, including the three acting in concert and others, have agreed to tender their holding of 44.17% of AsiaPharm.
AsiaPharm made an initial public offering of shares on the Singapore Exchange in 2004. The balance of shares in AsiaPharm are widely dispersed, with the largest non-control shareholder, a local Singaporean fund, See Hoy Chan Equities holding around 7% and Martin Currie holding around 6%. The offer is conditional upon MBK cornering 90% of the outstanding shares of AsiaPharm.
The offer price of S$0.725 per share represents a premium of 14% over the last traded price of S$0.635 on January 31. But the share has gained since news of the deal filtered into the market. The price has been steady over the last six months, trading in a S$0.566-S$0.553 range. Thus the offer price is at a healthy premium of 31% over the volume weighted average price over the last one month, a 32% premium over the VWAP over the last three months and a 28% premium over the VWAP for the last six-month period.
AsiaPharm has very little debt on its books. But financial engineering or an intention to raise debt by highly gearing the target is not driving the transaction, clarify sources close to the deal.
"While credit markets remain challenging, we expect more mid-size financial sponsor deals such as this, which are not driven by financial leverage," explains Mike Netterfield, head of financial sponsors for Asia at ABN AMRO with respect to the prevailing environment. The investment bank is advising MBK Partners.
The deal is driven by the opportunity MBK perceives to create value in AsiaPharm through growing the business by acquisitions and other strategic moves. In rationale for the delisting in the Singapore Exchange filing, the offerer also cites ôthe continuous and extensive reforms in the pharmaceutical and health care sector in China (which) present significant regulatory uncertaintiesö and the management time and resources involved in being listed.
AsiaPharm is a specialty pharmaceutical group in China which started business in 1994. It is engaged in the production and sale of drugs and formulations for medicines for orthopaedics, neurology, gastroenterology and hepatology and also provides contract research services. AsiaPharm has a manufacturing facility in Yantai and a distribution network comprising 35 sales offices covering 30 provinces.
For the most recent audited twelve month period (which includes the last quarter of 2006 and the first three quarters of 2007) AsiaPharm posted revenues of $68 million on which it earned a profit of $12.6 million. At the equity value of $252 million at which the transaction has been launched, the price represents an earnings multiple of 20 times and a revenue multiple of 3.7 times.
"Accept the offer," says a a research update issued by DBS Group Research on February 5 after the offer was announced. DBS cites the premium of 51% MBK is offering above the recent low of S$0.48 at which AsiaPharm traded. DBS also comments: "(The) stock has underperformed since mid 2007. Earnings had disappointed due to integration costs for its recent acquisitions and the weak performance of its core drug æMaitongnaÆ which suffered from price cuts."
DBS also benchmarks AsiaPharm against its sector peers, saying the 18.6 times trailing 2007 earnings and the 15.8 times 2008 earnings which the offer price of S$0.752 represents is higher then the average of 15.3 times 2007 and 11.7 times 2008 at which comparables trades and corroborates DBS' view that shareholders should tender.
But shareholders may think otherwise. AsiaPharm was one of the top gainers on the Singapore Exchange on Wednesday, February 6 after the trading halt was lifted and investors digested details of the deal. The share gained over 10% to close at S$0.70. At this price it is just 3.5% shy of the price of S$0.725 MBK has offered.
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