M&A

‘Private’ healthcare

Resolution reached in one of China’s most drawn-out takeover battles

Zhang-Ligang-w

Zhang Ligang: iKang’s founder

The hostile battle to take over China Vanke drew to a close in early 2016 – in the end thanks to the government’s influence. The state-backed Shenzhen Metro ended up becoming the biggest shareholder of the iconic developer (see WiC317), and two unsolicited acquirors received costly fines from regulators (see WiC352).

During the same period an equally epic takeover battle erupted over Nasdaq-listed iKang Healthcare, China’s biggest medical check provider. That drawn-out saga only reached its conclusion this month thanks – this time – to intervention from internet giant Alibaba.

At the centre of the iKang ‘take-private wrangle’ was founder and Harvard graduate Zhang Ligang. The Jiangsu native was a senior executive at Sohu before founding online travel agent eLong in 1999. He then started an internet healthcare business in 2004 which became today’s iKang. It operates a nationwide network of 119 self-owned medical centres and 400 third-party facilities.

The company went public in 2014. The timing was off, however, as American investors’ enthusiasm for US-listed China stocks began rapidly cooling. Many Chinese bosses – frustrated by their firm’s low valuations on US bourses – hatched a plan B: take their companies private and then relist them on China’s A-share market at a higher price.

Zhang tried this himself. In 2015 he offered to take iKang private at $17.8 per share, which was close to the company’s stock price. But iKang’s archrival at home, the Shenzhen-listed Meinian OneHealth then gatecrashed Zhang’s buyout plan with a hostile takeover offer of $22 a share, and later raised its bid to $25.

This put Zhang in an awkward position. He either had to accept being swallowed by a rival, or raise his own offer significantly. With neither option palatable, iKang instead adopted various measures to fend off Meinian. These included activating a ‘poison pill’ defence and selling a large chunk of iKang shares at a big discount – so as to dilute the stake controlled by Meinian. iKang also filed complaints to the stock market and antitrust regulators about Meinian’s bid.

Complicating matters: Meinian was not acting alone. “From the very beginning this capital market battle was not about two healthcare firms, but a game between two groups of powerful business interests,” observed Yema Caijing. The WeChat-based financial news provider suggests that Meinian had the likes of Ping An Insurance and Carlyle Group as its supporters. Zhang responded by bringing in allies of his own: Alibaba and China Life Insurance.

Meinian didn’t end up gaining control of its archrival. Two weeks ago iKang announced that it had completed all the regulatory hurdles required to conclude its take-private deal.

According to Beijing Business Today, the updated buyout was worth about $2 billion with Alibaba taking 23% of iKang. The newspaper also suggested that iKang would become an important cog in Alibaba’s fast-growing consumer healthcare business.

“iKang is sitting on a valuable pool of Big Data from its medical examination businesses,” Beijing Business Today wrote. “It could become one of China’s biggest hospital and healthcare chains as the government continues to open up the industry for the private sector.”

In recent years, Alibaba’s founder Jack Ma has repeatedly talked about his “2H strategy”, which envisaged his internet conglomerate investing more heavily in “happiness” and “healthcare”. The iKang deal is a big step forward for Alibaba’s healthcare portfolio.

It is also likely to pit the Hangzhou-based firm against Ping An, the Shenzhen-based insurer that has ambitions in the ‘Big Health’ business (see WIC397). Should iKang opt to go public on the soon-to-be-launched Shanghai tech bourse, it would also play up the longstanding rivalry between Shanghai and Shenzhen. Meinian trades on the Shenzhen bourse with a market value of about Rmb58 billion ($8.5 billion).


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