Tianjin Zhongxin Pharm Group

[Squirrel]

Shanghai Industrial Holdings has emerged as part of a conglomerate buying the shares in TPH (holder of Tianjin Zhongxin shares and other pharmaceutical businesses via a JV. Tianjin Bohai, an SOE is the seller.

12月19日上午，上实集团和天津泰达控股旗下津联控股在万丽天津宾馆举行天津医药集团混改签约仪式，标志着天津医药集团混改取得重大成果

Please note the article seems to have a typo on the date saying it is 2月19日上午. I am pretty sure it is 19th Dec.

上海上实是上实集团境内国资运营平台，为参与天津医药集团项目混改，上海上实牵头，携手多家混合所有制企业成立津沪深公司，注册资本50亿元。

https://www.siic.com/gb_news_single.php?...%20%201015

The company has since made a general offer for shares both on A shares and S Shares

https://links.sgx.com/FileOpen/TJZX%20-%...eID=642931

"Conditional S Shares Chain OfferThe  S  Shares  Chain  Offer  will  be  conditional  upon  the  Offeror  and  the  Purchaser  having received, by the close of the Chain Offers, valid acceptances in respect of such number of Offer Shares, which when taken together with the Shares owned, controlled or agreed to be acquired by  the  Offeror,  the  Purchaser  and  TPH and  parties  acting  in  concert  with  the  Offeror,  the Purchaser and TPHbefore or during the Chain Offers, will result in the Offeror, the Purchaser and TPH and parties acting in concert with the Offeror, the Purchaser and TPHholding more than 50% of the Shares (excluding anyShares held in treasury) as at the close of the S Shares Chain Offer.Accordingly,  the  S  Shares  Chain  Offer  will  not  become  or  be  capable  of  being  declared unconditional as to acceptances, unless at any time prior to the close of the Chain Offers, the Offeror  and  the  Purchaser  have  received  valid  acceptances  in  respect  of  such  Offer  Shares which, when taken together with the Shares owned, controlled or agreed to be acquired by the Offeror, the Purchaser and TPH and parties acting in concert with the Offeror, the Purchaser and TPH before or during the Chain Offers, will result in the Offeror, the Purchaser and TPH and parties acting in concert with the Offeror, the Purchaser and TPHholding such number of Shares carrying more than 50% of the voting rights attributable to the maximum potential issued share capital(excluding any  Shares held in treasury)of the Company. For  this purpose, the "maximum  potential  issued  share  capital  ofthe  Company"  means  the  total  number  of Shares  which  would  be  in  issue  had  all  outstanding  instruments  convertible  into,  rights  to subscribe for, and options in respect of, the Shares (including pursuant to the 2019 Restricted A-Share Incentive Scheme) (other than those acquired or agreed to be acquired by the Offeror, the Purchaser and TPH) have been exercised as at the date of such declaration."

Seems like a lowball offer for S shares. Their intention is to take out the A shares completely and unconditionally.

Can anyone advise whether they need to appoint an IFA for this general offer for S Shares? Is there precedence for taking out shares at different prices over different exchanges?

[Shiyi]

Shanghai Industrial Holdings has emerged as part of a conglomerate buying the shares in TPH (holder of Tianjin Zhongxin shares and other pharmaceutical businesses via a JV. Tianjin Bohai, an SOE is the seller.

12月19日上午，上实集团和天津泰达控股旗下津联控股在万丽天津宾馆举行天津医药集团混改签约仪式，标志着天津医药集团混改取得重大成果

Please note the article seems to have a typo on the date saying it is 2月19日上午. I am pretty sure it is 19th Dec.

上海上实是上实集团境内国资运营平台，为参与天津医药集团项目混改，上海上实牵头，携手多家混合所有制企业成立津沪深公司，注册资本50亿元。

https://www.siic.com/gb_news_single.php?...%20%201015

The company has since made a general offer for shares both on A shares and S Shares

https://links.sgx.com/FileOpen/TJZX%20-%...eID=642931

"Conditional S Shares Chain OfferThe  S  Shares  Chain  Offer  will  be  conditional  upon  the  Offeror  and  the  Purchaser  having received, by the close of the Chain Offers, valid acceptances in respect of such number of Offer Shares, which when taken together with the Shares owned, controlled or agreed to be acquired by  the  Offeror,  the  Purchaser  and  TPH and  parties  acting  in  concert  with  the  Offeror,  the Purchaser and TPHbefore or during the Chain Offers, will result in the Offeror, the Purchaser and TPH and parties acting in concert with the Offeror, the Purchaser and TPHholding more than 50% of the Shares (excluding anyShares held in treasury) as at the close of the S Shares Chain Offer.Accordingly,  the  S  Shares  Chain  Offer  will  not  become  or  be  capable  of  being  declared unconditional as to acceptances, unless at any time prior to the close of the Chain Offers, the Offeror  and  the  Purchaser  have  received  valid  acceptances  in  respect  of  such  Offer  Shares which, when taken together with the Shares owned, controlled or agreed to be acquired by the Offeror, the Purchaser and TPH and parties acting in concert with the Offeror, the Purchaser and TPH before or during the Chain Offers, will result in the Offeror, the Purchaser and TPH and parties acting in concert with the Offeror, the Purchaser and TPHholding such number of Shares carrying more than 50% of the voting rights attributable to the maximum potential issued share capital(excluding any  Shares held in treasury)of the Company. For  this purpose, the "maximum  potential  issued  share  capital  ofthe  Company"  means  the  total  number  of Shares  which  would  be  in  issue  had  all  outstanding  instruments  convertible  into,  rights  to subscribe for, and options in respect of, the Shares (including pursuant to the 2019 Restricted A-Share Incentive Scheme) (other than those acquired or agreed to be acquired by the Offeror, the Purchaser and TPH) have been exercised as at the date of such declaration."

Seems like a lowball offer for S shares. Their intention is to take out the A shares completely and unconditionally.

Can anyone advise whether they need to appoint an IFA for this general offer for S Shares? Is there precedence for taking out shares at different prices over different exchanges?

[Shiyi]

Shanghai Industrial Holdings has emerged as part of a conglomerate buying the shares in TPH (holder of Tianjin Zhongxin shares and other pharmaceutical businesses via a JV. Tianjin Bohai, an SOE is the seller.

12月19日上午，上实集团和天津泰达控股旗下津联控股在万丽天津宾馆举行天津医药集团混改签约仪式，标志着天津医药集团混改取得重大成果

Please note the article seems to have a typo on the date saying it is 2月19日上午. I am pretty sure it is 19th Dec.

上海上实是上实集团境内国资运营平台，为参与天津医药集团项目混改，上海上实牵头，携手多家混合所有制企业成立津沪深公司，注册资本50亿元。

https://www.siic.com/gb_news_single.php?...%20%201015

The company has since made a general offer for shares both on A shares and S Shares

https://links.sgx.com/FileOpen/TJZX%20-%...eID=642931

"Conditional S Shares Chain OfferThe  S  Shares  Chain  Offer  will  be  conditional  upon  the  Offeror  and  the  Purchaser  having received, by the close of the Chain Offers, valid acceptances in respect of such number of Offer Shares, which when taken together with the Shares owned, controlled or agreed to be acquired by  the  Offeror,  the  Purchaser  and  TPH and  parties  acting  in  concert  with  the  Offeror,  the Purchaser and TPHbefore or during the Chain Offers, will result in the Offeror, the Purchaser and TPH and parties acting in concert with the Offeror, the Purchaser and TPHholding more than 50% of the Shares (excluding anyShares held in treasury) as at the close of the S Shares Chain Offer.Accordingly,  the  S  Shares  Chain  Offer  will  not  become  or  be  capable  of  being  declared unconditional as to acceptances, unless at any time prior to the close of the Chain Offers, the Offeror  and  the  Purchaser  have  received  valid  acceptances  in  respect  of  such  Offer  Shares which, when taken together with the Shares owned, controlled or agreed to be acquired by the Offeror, the Purchaser and TPH and parties acting in concert with the Offeror, the Purchaser and TPH before or during the Chain Offers, will result in the Offeror, the Purchaser and TPH and parties acting in concert with the Offeror, the Purchaser and TPHholding such number of Shares carrying more than 50% of the voting rights attributable to the maximum potential issued share capital(excluding any  Shares held in treasury)of the Company. For  this purpose, the "maximum  potential  issued  share  capital  ofthe  Company"  means  the  total  number  of Shares  which  would  be  in  issue  had  all  outstanding  instruments  convertible  into,  rights  to subscribe for, and options in respect of, the Shares (including pursuant to the 2019 Restricted A-Share Incentive Scheme) (other than those acquired or agreed to be acquired by the Offeror, the Purchaser and TPH) have been exercised as at the date of such declaration."

Seems like a lowball offer for S shares. Their intention is to take out the A shares completely and unconditionally.

Can anyone advise whether they need to appoint an IFA for this general offer for S Shares? Is there precedence for taking out shares at different prices over different exchanges?

Since the idea of mixed reform is to divest SOE holdings, I'm puzzled that why Shanghai Holdings, another SOE, is one of the buyers. Anybody knows?

[Squirrel]

The IFA analysis actually shows how undervalued the shares are trading at.

https://links.sgx.com/FileOpen/16%2006%2...eID=657864

Having regard to the considerations set out in this Letter, the information available to us as at the Latest Practicable Date and subject to the assumptions and qualifications set out in this Letter, we are of the opinion that the terms of the S Shares Chain Offer are NOT FAIR and NOT REASONABLE from a financial point of view based on the following key factors:

[Squirrel]

The IFA analysis actually shows how undervalued the shares are trading at.

https://links.sgx.com/FileOpen/16%2006%2...eID=657864

Having regard to the considerations set out in this Letter, the information available to us as at the Latest Practicable Date and subject to the assumptions and qualifications set out in this Letter, we are of the opinion that the terms of the S Shares Chain Offer are NOT FAIR and NOT REASONABLE from a financial point of view based on the following key factors:

Extracted from the document.

Estimated range of values for each S Share

Having considered Sections 7.1 to 7.7 of this Letter, the P/E and EV/EBITDA multiple valuation is our primary valuation methodology taking into consideration the nature of the Group's core business as well as the Group being profitable for the latest three financial years and its ability to continue as a going concern.

Applying the mean P/E and EV/EBITDA multiples of the Selected Comparable Companies to the Group's earnings of RMB661.7 million and EBITDA of RMB856.0 million for FY2020 and taking into account the net cash of the Group of RMB1,954.6 million and non-controlling interest of the Group of RMB141.5 million as at 31 December 2020, the estimated range of values is between USD2.091 to USD2.617 per S Share. We note that the S Shares Offer Price of USD0.894 is below the estimated range of values.

We have also considered the asset-based approach to show the extent to which the value of each S Share is backed by both tangible and intangible assets, assuming the hypothetical sale of all assets of the Group over a reasonable period of time. However, the asset-based approach does not take into account the future earning prospects of the Group and the Group is not an asset heavy company such as investment / real estate holding companies or property developers. The Group's non-current assets are primarily property, plant and equipment which are used in the operation of the business and that it is their intention to continue using them in its current business. Nevertheless, the asset-based approach serves as a meaningful reference point for comparison with the S Shares Offer Price against the Company's NAV per share. We note that the S Shares Offer Price represents a discount of approximately 22.4% and 22.2% to the audited NAV per Share and NTA per Share respectively. We also note that the P/NAV ratio of 0.8 times implied by the S Shares Offer Price is below the mean of the P/NAV ratios of the Selected Comparable Companies of 2.5 times and the mean of the P/NAV ratios of the Selected Comparable Transactions of 1.5 times.

[Shiyi]

The IFA analysis actually shows how undervalued the shares are trading at.

https://links.sgx.com/FileOpen/16%2006%2...eID=657864

Having regard to the considerations set out in this Letter, the information available to us as at the Latest Practicable Date and subject to the assumptions and qualifications set out in this Letter, we are of the opinion that the terms of the S Shares Chain Offer are NOT FAIR and NOT REASONABLE from a financial point of view based on the following key factors:

Extracted from the document.

Estimated range of values for each S Share

Having considered Sections 7.1 to 7.7 of this Letter, the P/E and EV/EBITDA multiple valuation is our primary valuation methodology taking into consideration the nature of the Group's core business as well as the Group being profitable for the latest three financial years and its ability to continue as a going concern.

Applying the mean P/E and EV/EBITDA multiples of the Selected Comparable Companies to the Group's earnings of RMB661.7 million and EBITDA of RMB856.0 million for FY2020 and taking into account the net cash of the Group of RMB1,954.6 million and non-controlling interest of the Group of RMB141.5 million as at 31 December 2020, the estimated range of values is between USD2.091 to USD2.617 per S Share. We note that the S Shares Offer Price of USD0.894 is below the estimated range of values.

We have also considered the asset-based approach to show the extent to which the value of each S Share is backed by both tangible and intangible assets, assuming the hypothetical sale of all assets of the Group over a reasonable period of time. However, the asset-based approach does not take into account the future earning prospects of the Group and the Group is not an asset heavy company such as investment / real estate holding companies or property developers. The Group's non-current assets are primarily property, plant and equipment which are used in the operation of the business and that it is their intention to continue using them in its current business. Nevertheless, the asset-based approach serves as a meaningful reference point for comparison with the S Shares Offer Price against the Company's NAV per share. We note that the S Shares Offer Price represents a discount of approximately 22.4% and 22.2% to the audited NAV per Share and NTA per Share respectively. We also note that the P/NAV ratio of 0.8 times implied by the S Shares Offer Price is below the mean of the P/NAV ratios of the Selected Comparable Companies of 2.5 times and the mean of the P/NAV ratios of the Selected Comparable Transactions of 1.5 times.

The IFA, or for that matter SGX, has not addressed the issue as to why there is such a big gap between the offer for A share and S share.

[ghchua]

The IFA, or for that matter SGX, has not addressed the issue as to why there is such a big gap between the offer for A share and S share.

Hi Shiyi,

It is not the IFA job to comment on the offer price gap between A shares and S shares, since A shares and S shares are not fungible. Their scope is really to provide an opinion on the S Shares Chain Offer Price.

SGX? They are not responsible for takeover offers. This matter belongs to the Singapore Company Act, under Singapore Code on Take-overs and Mergers. Also, please take note that under the Code, there is no legal requirement for the S Shares Offer Price to be the same as the A Shares Offer Price. The same apply to PRC Acquisition Rules on takeovers as well.

[mslee888]

Morever, the TianJin S shares here have all along been traded at a big discount to A shares. So its expected that the takeover offer will be at a discount too. The good thing is offeror has no strong intention to delist the S chip from SGX..so I guess its best just to hold on for those who find the takeoffer too low.

Vested..and will continue holding.

[ghchua]

Morever, the TianJin S shares here have all along been traded at a big discount to A shares. So its expected that the takeover offer will be at a discount too. The good thing is offeror has no strong intention to delist the S chip from SGX..so I guess its best just to hold on for those who find the takeoffer too low.

Vested..and will continue holding.

Hi mslee888,

I guess those with a longer term view should hold onto their S shares. Simply because you have the same voting rights and dividend entitlements as A shares. So, you are paying a lower price for S shares and you are entitled to the same dividend amount as A shares holders. Your dividend yield is higher than A shares holders.

The price gap is an issue, and it had all along been there. Since it is not fungible, there is no arbitrage opportunity between the two classes of shares listed on different exchanges, which explains why the gap has not closed. I think this issue will always be there unless they solve the problem and the shares could be freely traded between the two exchanges.

[Shiyi]

Morever, the TianJin S shares here have all along been traded at a big discount to A shares. So its expected that the takeover offer will be at a discount too. The good thing is offeror has no strong intention to delist the S chip from SGX..so I guess its best just to hold on for those who find the takeoffer too low.

Vested..and will continue holding.

Hi mslee888,

I guess those with a longer term view should hold onto their S shares. Simply because you have the same voting rights and dividend entitlements as A shares. So, you are paying a lower price for S shares and you are entitled to the same dividend amount as A shares holders. Your dividend yield is higher than A shares holders.

The price gap is an issue, and it had all along been there. Since it is not fungible, there is no arbitrage opportunity between the two classes of shares listed on different exchanges, which explains why the gap has not closed. I think this issue will always be there unless they solve the problem and the shares could be freely traded between the two exchanges.

Is there any precedents where the offer price is different for different 
jurisdictions?  Anybody knows?