Shanghai Century Acquisition, which raised $115 million when it went public on April 25, 2006, has announced that it has signed an agreement to acquire China's largest producer of IV solutions.
Shanghai Century Acquisition Corporation Announces Proposed Business Combination With Kelun Pharmaceutical, China's Largest Producer of IV Solution Products
Tuesday May 29, 8:01 am ET
HONG KONG, China, May 29 /PRNewswire-FirstCall/ -- Shanghai Century Acquisition Corporation (Amex: SHA - News), a special purpose acquisition corporation, announced today that it has entered into a definitive share purchase agreement to acquire 100 percent of the shares of privately-owned Sichuan Kelun Pharmaceutical Co., Ltd. (Kelun), China's largest producer of intravenous (IV) solution products.
As initial consideration, Shanghai Century will issue 20 million new Shanghai Century ordinary shares to the 18 individuals who currently hold all of the Kelun shares. In 2006 Kelun and its subsidiaries had combined revenues of approximately RMB1.38 billion (US$176.7 million) and net profits of approximately RMB113 million (US$14.5 million). Based on the US$7.74 average closing price of Shanghai Century ordinary shares for the last 30 trading days ending on May 25, 2007, and a 2006 year-end exchange rate of US$1.00 to RMB7.8087, this initial consideration represents a price-to-earnings ratio of 10.7 times Kelun's trailing combined 2006 earnings.
An additional consideration will be paid to Kelun shareholders if the combined business entity reaches certain future annual net profit targets, in each case on an all or nothing basis. If the combined business entity achieves the net profit target of RMB180 million (US$23.1 million) in 2007, Shanghai Century will issue an additional 5 million new ordinary shares. An additional 2 million new ordinary shares will be issued in respect of each of 2008 and 2009 if the combined business entity achieves the net profit targets of RMB260 million (US$33.3 million) and RMB370 million (US$47.4 million) in 2008 and 2009, respectively. In determining whether these targets are reached, net profits will be calculated by excluding the effects of certain accounting items described in the share purchase agreement.
The conversion of Renminbi (RMB) into U.S. dollars in this release is based on the exchange rate of US$1=7.8087.
Kelun's shareholders have agreed to a 24-month lock-up of all their Shanghai Century shares commencing on their respective issuance dates.
A further US$11.5 million cash consideration will be paid to Kelun shareholders when Shanghai Century's ordinary share price equals or exceeds US$11.50 per share for any 20 trading days within a 30 day trading period and Shanghai Century sends a notice of redemption of its warrants or when at least 70% of Shanghai Century's warrants have been exercised.
Kelun started business in 1996. Since that time the company and its subsidiaries have been principally engaged in the development and production of IV solution products and their sale and distribution to hospitals, clinics and other healthcare facilities in China. Kelun is ranked as one of the top 50 pharmaceutical companies in China by the China Pharmaceutical Industry Association. Kelun's management believes its 2006 production of over one billion units makes it the largest manufacturer and supplier of IV solution products in China. In August 2006, both People's Daily's Marketing News and Brand Magazine named Kelun as the most influential brand among all IV solution products in China.
Kelun's portfolio of IV solution products includes electrolytes and acid-base balancing solutions, solutions containing anti-virus and anti-bacterial drugs, and solutions containing nutrients. These products are available in different sizes and packaged in sterile glass bottles, non-polyvinyl chloride and polypropylene (PP) bags as well as Kelun's own patented upright-standing PP soft bags.
Kelun also produces other generic prescription drugs and over-the-counter medicines which are available in other forms, including small volume injection solutions, sterile powder injections, lyophilized powder injections, tablets, capsules, powder and oral solutions.
Kelun has one of the most extensive nation-wide pharmaceutical sales networks in China, comprising 53 exclusive principal regional sales agents with more than 2,500 sales persons who cover urban and rural areas throughout China.
After payment of the initial 20 million Shanghai Century shares, Kelun shareholders will hold approximately 53.3 percent of the issued and outstanding ordinary shares of Shanghai Century. If the combined business entity achieves all of its net profit targets in 2007, 2008 and 2009, the Kelun shareholders will hold approximately 62.4 percent of the issued and outstanding ordinary shares of Shanghai Century, assuming none of Shanghai Century's warrants and options are exercised and no other ordinary shares are issued following the business combination.
Following the closing of the business combination, Shanghai Century will be renamed China Kelun Pharmaceutical Corporation (China Kelun). Anthony Kai Yiu Lo and Franklin D. Chu, the current Co-Chief Executive Officers of Shanghai Century, will remain on the board of China Kelun as non-executive directors. Mr. Gexin Liu, the current chairman of Kelun's board of directors, will become the chairman of China Kelun.
Anthony Lo stated, "We believe that Kelun represents an outstanding investment target - a market leader with excellent management and dynamic top and bottom line growth. Moreover, Kelun operates in the rapidly expanding China health-care industry which is attracting increasing government attention and support."
Franklin Chu added: "Kelun has built a very strong commercial platform through both organic growth and successful acquisitions. Its nationwide distribution network is one of the most extensive of any pharmaceutical company in China, which we believe will enable Kelun to significantly enhance sales of its continuously expanding product portfolio."
Gexin Liu commented, "China's rapid economic development, expanding urban middle class and growing commitment to healthcare make the country's pharmaceutical sector one of the most exciting in the world today. We have strategic plans to fully utilize the financial resources of Shanghai Century to help us grow even faster domestically and expand into export markets. We are proud of our company's achievements and we are totally committed to achieving even greater success in the future and enhancing shareholder value."
The proposed acquisition has been unanimously approved by the board of directors of Shanghai Century and Kelun. It is subject to the approval by a majority of the shareholders of Shanghai Century in person or by proxy at a meeting to be held for that purpose as well as certain closing conditions, including obtaining approval from the Chinese government. In addition, Shanghai Century will not complete the acquisition if its shareholders holding 20% or more of the ordinary shares issued in its initial public offering both vote against the acquisition and elect to convert their ordinary shares into a pro rata share of the funds in Shanghai Century's trust account.
All financial information included in this press release was prepared by Kelun as a private company based on unaudited management accounts in accordance with generally accepted accounting principles in the United States and may be different from the audited results of Kelun and its subsidiaries. Accordingly, such information may be adjusted and presented differently in the preliminary and definitive proxy statement to be filed by Shanghai Century with the US Securities and Exchange Commission (SEC).
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