Recently, TianTan Bio (600161.SH) announced that its controlling subsidiary Chengdu Rongsheng Pharmaceutical Co., Ltd. (referred to as "Chengdu Rongsheng") intends to acquire 100% of the shares of Wuhan Zhongyuan Ruide Biological Products Co., Ltd. (referred to as "Zhongyuan Ruide"), a wholly-owned subsidiary of CSL Behring Asia Pacific Limited (“CSL Asia Pacific”), for a total amount of $185 million (approximately 1.317 billion yuan).

After the completion of this transaction, Zhongyuan Ruide will become a controlled subsidiary of TianTan Bio, and its financial statements will be consolidated. TianTan Bio indicated that it will add a new blood product production enterprise and five operational blood plasma collection stations.

According to reporters from China Business Journal, Zhongyuan Ruide was acquired by CSL Asia Pacific between 2017 and 2018 through its subsidiary CSL Behring. However, after seven years, CSL Asia Pacific has chosen to sell at a discounted price. Additionally, the company is currently in a loss-making situation due to high management costs and low gross margins.

Regarding the impact of this equity acquisition on the company and its future development, reporters recently reached out to TianTan Bio for comments but did not receive a response before publication. Multiple calls to the company’s securities department also went unanswered.

Discounted Sale of Five Plasma Stations

The announcement shows that Zhongyuan Ruide holds production approvals for 13 products, including human albumin and intravenous immunoglobulin. The company operates five wholly-owned plasma stations in Hubei, all of which possess the required licenses and are engaged in plasma collection, accumulating a total of 112.37 tons of plasma in 2023.

In 2017, CSL Asia Pacific acquired 80% of Zhongyuan Ruide from Renfu Pharmaceutical (600079.SH) for $352 million. In 2018, CSL Asia Pacific purchased the remaining 20% stake for $102 million, bringing the total acquisition cost to $454 million.

At the time, CSL Asia Pacific considered this strategic acquisition essential to strengthening its position in the Chinese blood product market and consolidating its subsidiary's leadership in the imported albumin market.

However, after seven years, CSL Asia Pacific has transferred its 100% ownership of Zhongyuan Ruide to TianTan Bio for just $185 million, representing a steep discount from the original acquisition price.

Zhongyuan Ruide, established in 2010, continues to face significant losses. TianTan Bio attributed the losses to low gross margins (due to product yield and pricing) and high administrative expenses.

According to the announcement, Zhongyuan Ruide generated revenue of 150 million yuan in 2023 but incurred a net loss of 274 million yuan, resulting in a net asset position of -275 million yuan and total liabilities of 1.223 billion yuan, indicating a state of insolvency.

However, within just six months, Zhongyuan Ruide’s net profit and net asset position improved significantly, thanks to two financial maneuvers before the acquisition.

It was revealed that on May 31, 2024, CSL Asia Pacific decided to convert a loan of approximately 690 million yuan (including principal and accrued interest) issued to Zhongyuan Ruide into equity. Additionally, CSL Asia Pacific and its foreign affiliates waived all payables owed by Zhongyuan Ruide, totaling approximately 207 million yuan.

With these measures, Zhongyuan Ruide turned its losses around in the first half of 2024, achieving a net profit of 69.59 million yuan and boosting its net assets to 486 million yuan. Total liabilities were reduced from 1.223 billion yuan at the end of 2023 to 403 million yuan.

Regarding how Zhongyuan Ruide will quickly overcome its loss-making situation post-acquisition, TianTan Bio indicated that the company will leverage its technological advantages to enhance operational efficiency.

“This transaction will help consolidate plasma resources through acquisition and foster competitiveness, resulting in external growth, increased plasma collection volume, and extended business expansion capabilities," TianTan Bio remarked.

At the same time, TianTan Bio has warned that Zhongyuan Ruide's profitability may be influenced by various factors, which could lead to significant fluctuations. If Zhongyuan Ruide's future operational performance does not meet expectations, there may be risks of goodwill impairment that could adversely affect the company’s financial performance.

Ongoing Expansion Efforts

The blood products industry has high barriers to entry. To ensure safety and standardized production, the State Council released a notification in 2001 that mandates stricter controls on new blood product manufacturing enterprises. As a result, there are currently less than 30 operational blood product companies in China, with only about 17 when considering group consolidations. This has led to a concentration of industry leadership among companies like TianTan Bio, Taibang Biologic, Shijiazhuang Yirong (002252.SZ), Palin Bio (000403.SZ), and Hualan Bio (002007.SZ).

In this context of increasing industry concentration, mergers and acquisitions have become an essential means for blood product companies to expand plasma resources and enhance competitiveness.

TianTan Bio is one of the earliest companies in China to industrialize blood product production, maintaining a leading position in the number of plasma collection stations and collection scale. By 2023, TianTan Bio's collection stations numbered 102, distributed across 16 provinces. In that year, its 79 operational plasma collection stations harvested 2,415 tons of plasma.

In the first half of this year, TianTan Bio collected 1,294 tons of plasma, accounting for approximately 20% of the domestic total. With the acquisition of Zhongyuan Ruide, TianTan Bio will gain an additional five plasma stations in Hubei, contributing over 110 tons of additional collection capacity annually.

Moreover, TianTan Bio has been actively acquiring plasma collection stations in the past two years. On July 29, 2022, through Chengdu Rongsheng, it acquired a 35% stake in Xi'an Huitian Biological Products Co., Ltd. (referred to as "Xi'an Huitian") from Taibang Biological Products for no more than 64.9763 million yuan. Chengdu Rongsheng also planned to inject up to 147 million yuan of additional capital, potentially raising TianTan Bio’s shareholding in Xi'an Huitian to 63.6962%.

Xi'an Huitian, based in Shaanxi Province, operates two plasma collection stations, which were inactive at the time of acquisition. The goal of this acquisition was to restore normal production at Xi'an Huitian, thereby expanding plasma resources and strengthening the company's overall capabilities.

Additionally, TianTan Bio’s semi-annual report for 2024 states that during the reporting period, the company enhanced its investment management efforts, following up on additional investments in five plasma stations (Songming, Gangu, Yongchang, Wuxue, and Badong) to lay a foundation for the expansion of blood source capacity and support the company’s internal growth.

Source：https://finance.eastmoney.com/a/202409143183319380.html