Sang froid

House of Fraser owner Sanpower invests in the blood business

yuan yafei

Royal connections: Yuan and friend discuss their elephant holiday

A quick pop quiz: please identify something in common between Scotland’s oldest department store House of Fraser and the world’s biggest cord blood bank?

The answer is Chinese tycoon Yuan Yafei.

The chain-smoking entrepreneur was little known overseas until 2014 when his Nanjing-based conglomerate Sanpower snapped up House of Fraser for £480 million ($691 million), the biggest offshore deal in the retail sector by a Chinese buyer (see WiC233).

Yuan was also a driving force behind the £100 million takeover of Hamleys’, Britain’s oldest toy shop. The deal was carried out last year by Hong Kong shoe retailer C.banner, which is controlled by Yuan’s brother-in-law (see WiC302).

While investors wait to see how Sanpower is going to get Chinese shoppers interested in its new acquisitions, Yuan has switched tack, moving into a sector little understood by most investors.

Nanjing Xinjiekou is one of China’s oldest department stores and was the Sanpower unit that Yuan used for the House of Fraser takeover. It said earlier this month that it has agreed to acquire the New York-listed China Cord Blood Corporation (CCBC) for about Rmb9 billion ($1.4 billion) – more than double its pre-deal value – and take it private.

Xinjiekou will buy the 65% stake in CCBC currently owned by Hong Kong-listed firm Golden Meditech.

According to the seller, CCBC is the largest cord blood bank operator in China. It focuses on a very niche market: services for cord blood collection (from the 3cm-to-9cm umbilical cords of newborns), as well as the processing and storage of cord blood stem cells.

This bank of blood cells is a kind of healthcare insurance policy which can be used later in life to counter life-threatening diseases relating to blood disorders and bone marrow failures.

Sanpower is a highly diversified conglomerate with business interests spanning media to department stores. But why is Yuan so interested in running a blood bank?

Xinjiekou had already agreed to acquire a Shandong-based cord blood provider (partly owned by CCBC) and the two deals combined will cost about Rmb11 billion. There are now seven cord blood banks in China and Sanpower will control the four leading ones in Beijing, Guangdong, Zhejiang and Shandong (reportedly, no more licences for blood storage will be granted by the Chinese government before 2020).

“Our reserves amount to 1 million [cord blood] units, which is far more than the previous biggest blood bank, Cord Blood Registry of the US, which has 500,000 units,” Sanpower said in a statement.

A nice narrative and one that Yuan may be readying to pitch to investors. Indeed, like other Chinese tycoons Yuan may be readying to not only take the US-listed firm private but also follow the trend of ‘refloating’ it on the A-share market in Shanghai.

New Century Cruise, an obscure tourism firm, announced in October that it would acquire gaming billionaire Shi Yuzhu’s Giant Interactive – delisted from the Nasdaq last year following a $3 billion buyout – in an all-stock deal. The takeover saw Century Cruise’s market capitalisation soar as much as seven times at one point in December, valuing Giant Interactive at $16 billion.

“If CCBC goes public in the A-share market via Nanjing Xinjiekou, it may repeat the legendary tale of New Century Cruise,” Securities Times notes, adding that the ‘second-child’ policy has also improved the blood bank’s prospect (more umbilicals presumably, see this week’s Talking Point).

Like what happens with so-called “demon stocks” – Chinese terminology for companies with gravity-defying share prices – some of the domestic brokerages have been hyping up Yuan’s new business. Essence Securities, for one, says the fair value of CCBC should be as high as $11 billion, or nearly 10 times higher than the company’s current buyout offer. (Shareholders in CCBC include the private equity firm KKR.)

Whether Chinese investors concur remains to be seen, but in the meantime Yuan is outlining the creative synergies he envisages between his blood bank and the House of Fraser.

“Nanjing Xinjiekou will own the largest cord blood bank in the world. It kick starts a ‘department store + elderly healthcare’ twin-engine strategy, and sets the stage for Sanpower becoming ‘China’s number one healthcare firm’,” Sanpower’s press team has explained.

It requires a leap of faith to see how the combination might turn Sanpower into a full service healthcare champion. But what is more obvious is that Sanpower’s dealings play to Yuan’s networking style.

For example, Sanpower’s investment in Britain gave him the opportunity to meet Prince William, who later invited the tycoon to join him on a visit to the wild elephants in Yunnan’s Xishuangbanna last year.

And prior to that in 2014 Sanpower acquired Nanjing’s International Finance Centre from none other than Hong Kong’s Li Ka-shing for Rmb3 billion. A few months later Yuan followed in the footsteps of Asia’s richest man by buying Israel’s largest pension services firm Natali (see WiC302 on Li Ka-shing’s investments in Israel). Now Sanpower’s investment in CCBC brings Yuan into contact with another well-connected business partner. CCBC’s seller Golden Meditech was founded by Kam Yuan, a businessman who has been courted by princelings from both sides of the Taiwan Strait (see this week’s Who’s Hu).

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.