Shanghai Century Acquisition Corporation, a China-based special purpose acquisition corporation, has entered into a definitive share purchase agreement to acquire 100 percent of the shares of privately owned Sichuan Kelun Pharmaceutical, 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 $176.7 million and net profits of approximately $14.5 million.
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 $23.1 million in 2007, Shanghai Century will issue an additional five million new ordinary shares. An additional two 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 $33.3 million and $47.4 million in 2008 and 2009, respectively.
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 $11.5 million cash consideration will be paid to Kelun shareholders when Shanghai Century's ordinary share price equals or exceeds $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 percent of Shanghai Century's warrants have been exercised.
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.
Following the closing of the business combination, Shanghai Century will be renamed China Kelun Pharmaceutical Corporation (China Kelun). Mr Anthony Kai Yiu Lo and Mr 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.
Mr Anthony Lo said, “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.”
“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,” said Mr Gexin Liu.
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 percent 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.