Biostime Surges to Record on Purchase of Health-Supplement Maker

  • Chinese baby formula maker buys Australia's Swisse Wellness
  • Biostime arranges $450 million in bridge financing for deal

Biostime International Holdings Ltd., the Chinese infant formula producer, surged to a record in Hong Kong trading after agreeing to take control of Australian health-supplement maker Swisse Wellness Group Pty for A$1.3 billion ($934 million).

The company will pay A$1.34 billion in cash and issue 20.5 million new shares as payment for the 83 percent stake, according to a Hong Kong stock exchange filing. The stock jumped as much as 34 percent to HK$18.08, and traded at HK$17.28 as of 10:26 a.m. local time.

Concerns over food safety and health are driving the demand for foreign products in China, with sales of vitamin and dietary supplement almost doubling in the past five years, according to market researcher Euromonitor International. The deal, while boosting earnings, is expensive and will take Biostime from a net cash position into debt, Bank of America Corp. analysts said in a report Friday.

“We see potential for the vitamin market in China, but Biostime needs to invest heavily beyond its own brand to promote Swisse,” Tina Long and Chen Luo of Bank of America wrote. “Execution risks are high,” they wrote.

Melbourne-based Swisse Wellness, which is controlled by the family of founder Kevin Ring and management, sees an “enormous” opportunity in China, Chief Executive Officer Radek Sali said earlier this month. The company had an after-tax profit from continuing operations of A$73.7 million in the year ended June 30, compared with a year earlier loss of A$5.61 million.

Biostime had 4 billion yuan ($628 million) cash and equivalents at the end of June, according to data compiled by Bloomberg. Australia and New Zealand Banking Group and HSBC Holdings Plc will provide as much as $450 million of bridge financing, the company said. HSBC was also sole financial adviser for Biostime.

“This deal helps Biostime become a more comprehensive health and wellness products company,” Thomas Jastrzab, a Hong Kong-based analyst at Bloomberg Intelligence, said by e-mail before the Biostime statement. “The new products will likely appeal to Chinese seniors that are looking to extend and improve their quality of life.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE