Shanghai Pharma to buy US Cardinal Health unit for US$557m

BEIJING: State-owned Shanghai Pharmaceuticals Holding Co has agreed to acquire Cardinal Health Inc’s China drug distribution business for US$557 million (RM2.33 billion), as it seeks to expand its distribution and retail network nationwide.

The acquisition will also help Shanghai Pharma, China’s third largest drug distributor, become a leading importer of foreign medicine into the world’s secondlargest drug market.

The deal, which included shareholder loans, gave Cardinal’s business in mainland China and Hong Kong an enterprise value of US$1.2 billion, equivalent to about 15 times its adjusted earnings before interest, taxes, depreciation and amortisation for the year ended June, said Shanghai Pharma in a statement.

Cardinal Health put its China business up for sale in July over worries that the country’s upcoming drug distribution reform could slow its growth.

The sale drew keen interest from state-backed Chinese pharmaceuticals companies and private equity firms such as Warburg Pincus and Hong Kongbased FountainVest, said sources with knowledge of the matter.

Beijing introduced a so-called “two-invoice” procurement system in January on a trial basis as part of an overhaul of the country’s fragmented healthcare sector aimed at streamlining the distribution chain.

Under the new system, expected to be fully implemented next year, drug manufacturers can only work with a single distributor that directly supplies products to healthcare facilities such as hospitals.

Morgan Stanley and China Merchants Securities advised Shanghai Pharma on the deal, which is subjected to an antimonopoly review by China’s Ministry of Commerce. Reuters