Excerpts from analysts' report
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What’s New
Golden Meditech (GM) has moved fast to secure its control of CCBC. After market close yesterday, it announced an agreement with KKR to buy its 22.9m 7% convertible notes for USD159.9m plus interest. This is subject to EGM approval with a long-stop date of 14 Oct 2015. The deal works out to USD7/note before interest.
If it goes through, GM will secure 52% of CCBC. And if Cordlife accepts its offer as well, GM will have 65%. This leaves Jayhawk the last party standing with 8.7%*. Even if it can get hold of Cordlife’s 13.4%* stake and CCBC’s entire free float, it would still only have 46% of CCBC. This is not enough to stop GM from proceeding with a voluntary delisting, but to block a mandatory delisting, it could buy enough shares from the market to reach 10%. * Percentages changed due to changes in share base
What’s Our View
This is shaping up as a major payday for Cordlife. At USD6.40/share and USD7/note, it could pocket USD108.5m or SGD146.5m, assuming USD6.73/share on average. After repaying loans, it could still net almost SGD90m. This is the minimum as Cordlife’s notes will expire six months after KKR’s and it will get more interest.
What’s more, GM could still raise its offer for CCBC shares slightly to avoid a long-drawn tussle with Jayhawk, subject to the opinions of CCBC’s appointed IFA and Special Committee. If so, the payoff could get bigger. Either way, it should have more than SGD120m, including existing cash of SGD34.7m, to: 1) gun for market share in Asia ex-China, including a potential takeover of 33% associate, StemLife, in Malaysia; and 2) pay a special dividend of up to 15 SGD cts, in our view. Longer term, we believe there is also scope for Cordlife to work with KKR to expand its pan-Asian platform.
