China's Fosun, Shanghai Pharma circle Georgia drugmaker Arbor for U.S. beef-up

China outbound capital restrictions
Fosun and Shanghai Pharma are bidding for a stake in U.S. drugmaker Arbor Pharma, as the Chinese banking authorities crack down on debt-fueled foreign acquisitions.

Fosun Pharma and Shanghai Pharma, the two Chinese companies previously rumored to be eyeing generics maker Stada, are back on the M&A radar. And rather than publicly denying their deal interest this time, the two have confirmed offers for U.S. drugmaker Arbor Pharma.

In a filing (Chinese, PDF) to the Shanghai Stock Exchange on Monday, Fosun said its Hong Kong unit submitted a nonbinding offer on July 19 for a stake in Arbor. Shanghai Pharma disclosed its own offer in a separate filing (Chinese, PDF).

The deal could value Arbor at $3 billion, and Arbor has appointed Bank of America Merrill Lynch to manage it, Reuters sources said.

Arbor, a privately held specialty pharma, sells the restless legs drug Horizant, the heart failure drug Bidil and the blood pressure medication Edarbi, among others. It also markets a range of hospital medications and a suite of Erythromycin antibiotics in various formulations.

Neither Fosun nor Shanghai Pharma disclosed details of their bids, including the size of the stakes they’re seeking to buy and the prices they’re offering, saying that the discussions are confidential. Both acknowledged the bids are nonexclusive.

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Acquired by its current investor group in 2010, Arbor has eight products in clinical development in addition to its portfolio of marketed drugs. The candidates span several therapeutic areas, including cardiology, neuroscience, dermatology and in-hospital specialty drugs, according to the company’s website.

Fosun said in its filing that nabbing shares of Arbor would help improve its drug R&D capabilities as well as its presence outside of China.

A privately held company based in Georgia, Arbor is backed by private equity, with two board members from investment firm KKR—which has backed companies like Jazz Pharma and PRA Health Sciences—and two members (including its chairman) from New York-based fund manager JW Asset Management. The latter acted as the lead investor in Arbor's 2010 series A funding round, according to a December 2014 release that announced KKR’s acquisition of a significant minority stake in the company.

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The bids for Arbor come as the Chinese government cracks down on large-scale, debt-fueled acquisitions abroad. An official from the China Banking Regulatory Commission said in late June that the agency is investigating “systemic risks” in some big conglomerates over such dealmaking. Though no names were specified, several poster children of foreign purchases, Fosun included, are said to be under scrutiny.

It also comes just a few days after Bloomberg reported that the Indian government is poised to turn down Fosun’s proposed $1.26 billion bid for generic injectables maker Gland Pharma, which KKR also has a stake in. Citing people familiar with the matter, Bloomberg said India’s Cabinet Committee on Economic Affairs has decided to block Fosun’s attempt to buy a 86% stake in Gland; however, neither company has been formally notified of the decision.

For that deal, Fosun has already cleared several domestic and Indian regulatory hurdles, and it is suspected that the reported rejection is the result of rising tensions between India and China over territory friction. If finally approved, the Gland buy would set a new record for the largest pharma buy by a Chinese firm abroad.