02 December 10 The Business Times by Linette Lim
C&O Pharmaceutical Technology's stock yesterday rose as much as 4.1 per cent as investors reacted to an announcement that Sumitomo Corporation has taken a 29 per cent stake in it.
Leo Star Development Limited - an investment holding company helmed by C&O's executive chairman Gao Bin - sold the stake to Sumitomo. Leo and Mr Gao remain the largest shareholder by a whisker, at 29.17 per cent.
The sale-and-purchase agreement will see Sumitomo shelling out $96.19 million or $0.50 per share for the stake in the China-based pharmaceutical company.
The news sent the stock of C&O to an intra-day high of 50.5 cents, up 4.1 per cent, before it closed one cent or 2.1 per cent higher at 49.5 cents. About 8.3 million shares changed hands.
According to Sumitomo, C&O will be its vehicle to 'advance into the mainland China pharmaceutical market'.
C&O develops, manufactures and sells pharmaceutical drugs to 300,000 clinics, hospitals and pharmacies across China.
Sumitomo said in a statement that it expects the China pharmaceutical market to reach US$130 billion in size by 2020, overtaking Japan to become the second largest after the United States.
When the acquisition is completed, three directors on the C&O board will be replaced by three executive directors from Sumitomo. One of the Sumitomo directors will take the chairman's post, with Mr Gao reappointed as vice-chairman.
Mr Gao said that Sumitomo's global network, expertise in corporate management and experience in developing international markets will help C&O expand its business in China, as well as explore markets in South-east Asia.
Earlier, a CIMB report dated Sept 6 had noted C&O's stock rising 'on the back of speculation of M&A activities'.
The company's strong distribution network and balance sheet made it an attractive investment and fuelled such talk, said Phillip Securities analyst Toh Wei Kiong.
Mr Toh, who had issued a 'buy' call on C&O's stock last month, told The Business Times that the deal was not at all surprising. 'The only surprise was that the investor turned out to be a trading company. I had expected it to be a foreign pharmaceutical company,' he said.
Under the agreement, C&O will use Sumitomo as an intermediary to bring drugs already sold in Japan, the US and Europe, to China. In turn, Sumitomo will supply C&O with drug ingredients and support in R&D as well as export functions.
Sumitomo intends to double C&O's turnover to 15 billion yen ($233 million) within five years.