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Shanghai Pharma Acquires Cardinal Health’s China Business

November 15, 2017, Shanghai / Hong Kong – Shanghai Pharmaceuticals Holding Co., Ltd. ("Shanghai Pharma", SSE ticker: 601607, HKEx ticker: 2607), a leading pharmaceutical manufacturer and healthcare services provider in China, today announced that its wholly-owned subsidiary Shanghai Pharma Century Global Ltd. (“Century Global”) has entered into a Stock Purchase Agreement with a wholly owned subsidiary of Cardinal Health, Inc. (NYSE: CAH, "Cardinal Health"). Shanghai Pharma will acquire a 100% stake in Cardinal Health (L) Co., Ltd. in an all-cash offer. The Base Payment for the transaction is US$1.2 billion, from which shareholder loans and certain other debts netting off cash in hand will be deducted and a difference between the closing date working capital and a working capital target will be added or deducted upon deal completion in accordance with the Stock Purchase Agreement.  The company estimates the Final Payment will be approximately US$557 million. Shanghai Pharma will own Cardinal Health’s business entities in the PRC (“Cardinal Health China”) upon the completion of this transaction. 

Shanghai Pharma and Cardinal Health are also entering into a strategic partnership to collaborate on exploring global business opportunities by leveraging their respective strengths. This includes developing new business models for the industry to address rapidly changing patient and consumer needs.

Mr. Zhou Jun, Chairman of Shanghai Pharma said, "Amid the national healthcare reform, the acquisition of Cardinal Health China business will further strengthen our leadership in distribution and retail pharmacy network, and expedite our transformation to become a modern global healthcare provider.  This will also facilitate the growth of our pharmaceutical manufacturing business, enabling us to play a significant role in the Government’s ‘Healthy China’ initiative.”

Mr. Zhou added, "The strategic partnership between Shanghai Pharma and Cardinal Health showcases the collaborative spirit between two leading industry players, who are committed to leveraging their complementary strengths to achieve success. We will capitalize on the opportunities driven by breakthroughs in technology and innovation to better service medical institutions and patients.” 

With ongoing supply-side reforms in China, the domestic pharmaceutical distribution sector is poised to embrace a new wave of industry consolidation. The Chinese government has issued several new industry policies, in particular, the adoption of the "two invoice system" that aims to reduce intermediary links, and the "zero price markup" policy that limits public hospitals from profiting from drug sales. These industry policies drive distributors to upgrade a number of capabilities, including distribution network coverage, operational efficiency, capital sufficiency and logistic capabilities, resulting in accelerated sector consolidation and change of business model.

Shanghai Pharma is determined to capture the wide range of opportunities materializing from China’s fast changing healthcare industry. This includes organic growth and through merger & acquisitions with a strategy to expand its sales network and product categories, to enhance IT and logistics capabilities to better meet the emerging needs of medical institutions. The company also focuses on building a DTP (direct-to-patient) chain and an online retail pharmacy business to meet the increasing demand from individual consumers.  Cardinal Health China is well-established in the market and a sizeable player that complements Shanghai Pharma’s strategy. Through this acquisition, Shanghai Pharma will enhance its core competencies and solidify its leading position in several key market segments.

“It has been an honor to serve the people of China through our distribution business for the past 7 years,” said George Barrett, chairman and CEO of Cardinal Health. “We recognize that significant scale is required to be a market leader in China and with that in mind we are delighted to announce that Shanghai Pharma has agreed to purchase our distribution business in China.  We are very proud of the work that our colleagues have done and their accomplishments have allowed us to build a business that is now poised for further growth under its new owners.  On behalf of all of us in Cardinal Health I want to thank the team for their continued commitment, hard work and dedication to our customers and the patients they serve.”

As the eighth largest pharmaceutical product distributor, Cardinal Health China operates 14 direct sales subsidiaries, covering 13 cities directly and 322 cities indirectly, and providing services to approximately 11,000 medical institutions. This will greatly enhance Shanghai Pharma’s national network coverage with access to new regional markets such as Tianjin, Chongqing and Guizhou, as well as deeper penetration in existing areas such as Shanghai, Beijing and Zhejiang.

In addition, the acquisition will expand the company’s product line with increased number of drugs and non-drug products. In particular, Shanghai Pharma will become the No. 1 distributor of imported drugs by type in the country.

Cardinal Health China is a leading specialty drug and medical device distributor and a third-party logistics provider. With 17 distribution centers, 146,000 square-meter storage and 7,000 square-meter refrigerated storage, it provides medical institutions with technology-driven solutions and end-to-end supply chain management services. Such operations will enable Shanghai Pharma to expand the scope of its business and become a leading player in specialty drugs and medical devices.

For premium drug DTP pharmacy business, Shanghai Pharma intends to combine its 40 plus DTP stores in Eastern and Northern China with the 30 DTP stores from Cardinal Health China across 22 cities to create a leading DTP pharmacy chain, which will operate with unified brand and system. The increased scale will position Shanghai Pharma to become the preferred partner of international pharmaceutical manufacturers for their new specialty drugs in China.

Shanghai Pharma respects Cardinal Health China's management team and looks forward to working with them, and benefiting from their management experiences in multinational companies.  Shanghai Pharma also respects the interests of Cardinal Health China’s existing suppliers and customers, and shall partner with them for shared success in many years to come. 

Morgan Stanley Asia Limited and China Merchants Securities (Hong Kong) Limited act as the financial advisers to Shanghai Pharma, and Weil, Gotshal & Manges LLP and Zhonglun Law Firm are the legal counsels.


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