KKR-backed China Cord Blood gets buyout offer from Golden Meditech
China Cord Blood, a US-listed blood banking operator in which KKR holds a minority stake, has received a take-private offer from its largest shareholder, Chinese healthcare company Golden Meditech.
The prospective buyer is willing to pay $6.40 apiece for all outstanding American Depository Shares (ADS) that it does not already own, according to a regulatory filing. The offer - which represents a premium of 7.18% to the 30-day volume-weighted average price but is 11% lower than the April 24 closing price - values China Cord Blood at approximately $467 million.
The company's stock dropped in response to the announcement and it closed on April 28 at $6.38. It is still up 44% year-to-date.
In connection with the acquisition, Golden Meditech plans to buy out 7% senior convertible notes in China Cord Blood. KKR purchased $65 million of these notes in 2012, with a five-year tenor, a conversion price of $2.838 per share, and a guaranteed 12% return on maturity. The notes would convert into 22.9 million ordinary shares in China Cord Blood, or a 23.9% stake.
Based on the 2014 annual report, Golden Meditech has a 53.3% interest in the company through 30.7 million ordinary shares and 17.6 million in convertible notes - issued later the same year and at the same price as KKR's deal - with a principal amount of $50 million.
China Cord Blood is the first and largest cord blood banking operator in China in terms of geographical coverage and the only operator with multiple licenses. The company covers Beijing municipality and Guangdong and Zhejiang provinces. The government only allows one operator in each licensed region and to date only seven licenses have been issued nationwide.
Cord blood, which is rich in stem cells, is taken from the umbilical cord shortly after birth and placed into storage, only to be used if the child is later stricken by a serious illness. It can help treat over 80 types of disease, including leukemia and lymphoma.
China Cord Blood estimates that penetration of cord blood banking services in the country is less than 1% of the overall newborn population. Demand is expected to rise in tandem with increases disposable income and growing public awareness of the benefits of cord blood and stem cell-related therapies. The company had over 376,000 subscribers as of March 2014, up from 23,300 in 2007.
Revenue, most of which derives from subscription fees, came to RMB572.9 million ($92.2 million) in 2014, compared to RMB526.1 million the previous year. Net income rose from RMB112.4 million to RMB131.9 million over the same period.
Hong Kong-listed Golden Meditech is a healthcare business with interests spanning medical devices, healthcare services such as cord blood banking, and hospital management. As of September 2014, New Horizon Capital held a 21.21% stake in the company through its third fund.
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