Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

A private Chinese company taking on a state-owned rival for a prized overseas asset might appear to be a non-starter. Fosun International Ltd. has reason to think it can upset the odds.

Fosun's health-care business is competing with Shanghai Pharmaceuticals Holding Co. for a stake in U.S. specialty drugmaker Arbor Pharmaceuticals LLC, a deal that could fetch $600 to $700 million, Bloomberg News reported on Friday.

Shanghai-based Fosun could be forgiven for keeping its head down and staying out of takeover battles right now, especially one that involves a hometown competitor controlled by the government.

Concerned by capital outflows, Chinese authorities have been clamping down on overseas acquisitions by private companies, taking aim at "irrational" deals and the borrowing that funded a record buying binge last year. Fosun has been singled out, along with other non-state companies such as Dalian Wanda Group Ltd. 

Here's why the conglomerate may succeed: one, Shanghai Pharma already has its hands full with another, bigger bid; two, the asset that Fosun is seeking to buy fits perfectly with Beijing's ambition of turning the nation into an innovator in drugs.

Drug Deals
Grail is the biggest overseas pharmaceutical purchase in which Chinese investors have participated
Source: Bloomberg
Note: Figure for Grail is the amount paid by the buying consortium, which included non-Chinese investors.

Shanghai Pharma is competing against government-owned China Resources Pharmaceutical Group Ltd. for Cardinal Health Inc.'s Chinese operations and may be distracted by that $1.2 billion deal. 

Arbor, meanwhile, would help Shanghai Fosun Pharmaceutical Group Co. move up the drugmaking ladder in a country where most pharma firms are focused on selling generic pills. With China's population aging, demand for healthcare rising and incomes going up, drug innovation and quality medication have never been in so much demand.

The U.S. company, backed by KKR & Co., has a slate of products that treat first-world problems including Edarbi, which is used to manage high blood pressure, and Evekeo, an attention-deficit disorder medication.

There's a world of difference between a purchase like that and some of the other investments Fosun has picked up on its overseas shopping trips -- including Club Med, Cirque du Soleil and New York's Chase Manhattan Plaza building. 

Outward Bound
After scaling back overseas purchases last year, Fosun is acquiring assets again
Source: Bloomberg
Note: Data include completed transactions only.

As long as it sticks with the assets China needs, Fosun should be able to avoid the increasingly vigilant eye of Beijing.

There's nothing irrational about that.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net