Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Lansen Pharmaceutical Holdings Co, Ltd. / Event-Driven

<p>Net cash to the tune of 85% of market cap - check.</p>
<p>The company has been exiting out of a PRC-listed entity, increasing its cash pile - check.</p>
<p>The chairman privatised a UK-listed entity earlier this year, which in turn, is the controlling shareholder of the company - check.</p>
<p>Said chairman has been aggressively increasing his stake, and is now just shy of 70%, up from ~53% in December last year - check.</p>
<p>The company is <a href="https://www.smartkarma.com/entities/lansen-pharmaceutical-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:10835:1" rel="noopener">Lansen Pharmaceutical Holdings Co, Ltd. (503 HK)</a>. It's not large, nor liquid. But it's cheap, and a likely privatisation play.</p>
<p>More below the fold.</p>

Net cash to the tune of 85% of market cap - check.
The company has been exiting out of a PRC-listed entity, increasing its cash pile - check.
The chairman privatised a UK-listed entity earlier this year, which in turn, is the controlling shareholder of the company - check.
Said chairman has been aggressively increasing his stake, and is now just shy of 70%, up from ~53% in December last year - check.
The company is Lansen Pharmaceutical Holdings Co, Ltd. (503 HK). It's not large, nor liquid. But it's cheap, and a likely privatisation play.
More below the fold.

<div>
<p>In my short note <em><a href="https://skr.ma/prhHd" target="_blank" rel="noopener">Lansen Pharma (503 HK): This Is A Buy</a></em> on the 14 May, I recommended buying <a href="https://www.smartkarma.com/entities/lansen-pharmaceutical-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:10835:1" rel="noopener">Lansen Pharmaceutical Holdings Co, Ltd. (503 HK)</a> when it was trading at $1.97. It's now $2.63/share.</p>
<p>Since that insight, Lansen has announced it will further sell its remaining stake in <a href="https://www.smartkarma.com/entities/zhejiang-starry-pharmaceut-a" target="_blank" data-smartkarma-citation="entities:25327:1" rel="noopener">Zhejiang Starry Pharmaceut-A (603520 CH)</a>.</p>
<p>And after getting shareholder approval at its EGM, Lansen bought back 1mn shares - paying between $2.23-$2.22/share. Shares promptly popped ~13% following news of that buyback.</p>
<p>That buyback serves to increase the chairman's stake, which is currently around 70%. </p>
<p>This huge share price run-up in the last six months still has legs. </p>
</div>
<div>
<p>More below the fold.</p>
</div>


In my short note Lansen Pharma (503 HK): This Is A Buy on the 14 May, I recommended buying Lansen Pharmaceutical Holdings Co, Ltd. (503 HK) when it was trading at $1.97. It's now $2.63/share.
Since that insight, Lansen has announced it will further sell its remaining stake in Zhejiang Starry Pharmaceut-A (603520 CH).
And after getting shareholder approval at its EGM, Lansen bought back 1mn shares - paying between $2.23-$2.22/share. Shares promptly popped ~13% following news of that buyback.
That buyback serves to increase the chairman's stake, which is currently around 70%. 
This huge share price run-up in the last six months still has legs. 


More below the fold.


Lansen Pharma (503 HK): This Is Still A Buy

<ul>
<li>On the 17 September, specialty prescription drug manufacturer <a href="https://www.smartkarma.com/entities/lansen-pharmaceutical-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:10835:1" rel="noopener"><strong>Lansen Pharmaceutical Holdings Co, Ltd. (503 HK</strong>)</a>, a perennial takeover target, finally announced an Offer.</li>
<li>Wu Zhen Tao, NED and Chairman of Lansen, made an Offer for shares not indirectly held, of HK$1.80/share, by way of a Scheme, a 26.76% premium to last close.</li>
<li>Composite Doc is now out. Court Meeting is the 27th November. Expected last day of trading is the 28 Nov. 28 December payment. IFA says fair and reasonable. Looks done.</li>
</ul>


On the 17 September, specialty prescription drug manufacturer Lansen Pharmaceutical Holdings Co, Ltd. (503 HK), a perennial takeover target, finally announced an Offer.
Wu Zhen Tao, NED and Chairman of Lansen, made an Offer for shares not indirectly held, of HK$1.80/share, by way of a Scheme, a 26.76% premium to last close.
Composite Doc is now out. Court Meeting is the 27th November. Expected last day of trading is the 28 Nov. 28 December payment. IFA says fair and reasonable. Looks done.


Lansen Pharma (503 HK): 27th November Scheme Vote

<ul>
<li>Specialty prescription drug manufacturer<strong><a href="https://www.smartkarma.com/entities/lansen-pharmaceutical-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:10835:1" rel="noopener"> Lansen Pharmaceutical Holdings Co, Ltd. (503 HK)</a></strong> has been a perennial takeover target. And now we have an Offer.</li>
<li>Wu Zhen Tao, NED and Chairman of Lansen, has made an Offer for shares not indirectly held, of HK$1.80/share, by way of a Scheme, a 26.76% premium to last close.   </li>
<li>This looks done. Get involved if small-cap illiquid arbs are your thing. </li>
</ul>


Specialty prescription drug manufacturer Lansen Pharmaceutical Holdings Co, Ltd. (503 HK) has been a perennial takeover target. And now we have an Offer.
Wu Zhen Tao, NED and Chairman of Lansen, has made an Offer for shares not indirectly held, of HK$1.80/share, by way of a Scheme, a 26.76% premium to last close.   
This looks done. Get involved if small-cap illiquid arbs are your thing. 


Lansen Pharma (503 HK): The Chairman Makes An Offer

<div>
<p>Specialty prescription drug manufacturer <a href="https://www.smartkarma.com/entities/lansen-pharmaceutical-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:10835:1" rel="noopener">Lansen Pharmaceutical Holdings Co, Ltd. (503 HK)</a> has been a terrific little earner since December last year.</p>
<ul>
<li>But first, some background information to bring us up to date:</li>
</ul>
<div>
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 139.871px;">
<h3>Date</h3>
</td>
<td style="width: 606.141px;">
<h3>Data in the Date</h3>
</td>
</tr>
<tr>
<td style="width: 139.871px;">9-Mar-16</td>
<td style="width: 606.141px;">
<p><a href="https://www.smartkarma.com/entities/zhejiang-starry-pharmaceut-a" target="_blank" data-smartkarma-citation="entities:25327:1" rel="noopener">Zhejiang Starry Pharmaceut-A (603520 CH)</a> (Starry) specialises in the research and development, manufacture, marketing, and sales of bulk pharmaceuticals and intermediates. <br>One of the core products of Starry is iohexol for X-CT non-ionic contrast agents. Starry is the largest generic drug manufacturer of iohexol's active pharmaceutical ingredients in China. <br>Starry IPO-ed on the Shanghai Stock Exchange on 9 March 2016. <br>Lansens's equity interest in Starry was diluted from 21.5% to 16.1%, which constituted a disposal of an associate. </p>
</td>
</tr>
<tr>
<td style="width: 139.871px;">FY17</td>
<td style="width: 606.141px;">Lansen sold down its stake in Starry to 12.6% as at Dec-17</td>
</tr>
<tr>
<td style="width: 139.871px;">FY18</td>
<td style="width: 606.141px;">Lansen sold down its stake in Starry to 10.8% as at Dec-18</td>
</tr>
<tr>
<td style="width: 139.871px;">FY19</td>
<td style="width: 606.141px;">Lansen sold down its stake in Starry to 4% as at Dec-19</td>
</tr>
<tr>
<td style="width: 139.871px;">FY20</td>
<td style="width: 606.141px;">
<p>Lansen sold down its stake in Starry to 1.3% as at Dec-20</p>
</td>
</tr>
<tr>
<td style="width: 139.871px;">29-Sep-21</td>
<td style="width: 606.141px;">Lansen's chairman Wu Zhen Tao made a <a href="http://www.cathay-intl.com.hk/upload/announcement%20-%20notice%20of%20sgm%20and%20tender%20offer.pdf" target="_blank" rel="noopener">Tender Offer</a> for Cathay International.<br>We, via his holding in common shares and A Shares, controlled 73.54% of the vote in Cathay.<br>Cathay, in turn, held 52.83% of Lansen</td>
</tr>
<tr>
<td style="width: 139.871px;">3-Nov-21</td>
<td style="width: 606.141px;">Cathay's Tender Offer was approved by <a href="http://www.cathay-intl.com.hk/upload/result%20of%20sgm%20and%20notification%20of%20change%20to%20shares.pdf" target="_blank" rel="noopener">shareholders</a>. </td>
</tr>
<tr>
<td style="width: 139.871px;">11-Nov-21</td>
<td style="width: 606.141px;">Cathay's Tender Offer <a href="http://www.cathay-intl.com.hk/upload/results%20of%20the%20tender%20offer.pdf" target="_blank" rel="noopener">closed</a> on the 11 November with 94.3% of the common shares and A shares held</td>
</tr>
<tr>
<td style="width: 139.871px;">1-Dec-21</td>
<td style="width: 606.141px;">A compulsory acquisition notice was issued by Cathay and was done and dusted by the <a href="http://www.cathay-intl.com.hk/upload/update%20re%20compulsory%20acquisition.pdf" target="_blank" rel="noopener">11 January</a> this year.</td>
</tr>
<tr>
<td style="width: 139.871px;">11-Dec-21</td>
<td style="width: 606.141px;">Wu started buying shares in Lansen - aggressively. 41 separate incidences of buying, up to and including the 27 April, lifting his stake to 69.56%, from 52.83% initially.</td>
</tr>
<tr>
<td style="width: 139.871px;">23-Feb-21</td>
<td style="width: 606.141px;">Lansen <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0223/2021022300694.pdf" target="_blank" rel="noopener">sells</a> more Starry shares and then held ~1.3%.</td>
</tr>
<tr>
<td style="width: 139.871px;">15-Apr-21</td>
<td style="width: 606.141px;">Lansen <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0415/2021041500841.pdf" target="_blank" rel="noopener">sells</a> more Starry shares and then held ~0.9%</td>
</tr>
<tr>
<td style="width: 139.871px;">24-May-21</td>
<td style="width: 606.141px;">Lansen <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0524/2021052400543.pdf" target="_blank" rel="noopener">sells</a> more Starry shares and then held ~0.3%.</td>
</tr>
<tr>
<td style="width: 139.871px;">2-Jun-21</td>
<td style="width: 606.141px;">Two days after the AGM, Lansen starting <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0602/2021060201230.pdf" target="_blank" rel="noopener">buying back shares</a>, and proceeded to do so over a 10 separate trading days, stopping on the 26 July, prior to the earnings blackout. <br>Once canceled these buybacks lifted Wu's stake to 71.54%</td>
</tr>
<tr>
<td style="width: 139.871px;">31-Aug-21</td>
<td style="width: 606.141px;">Interim results <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0831/2021083102206.pdf" target="_blank" rel="noopener">released</a>
</td>
</tr>
<tr>
<td colspan="2" style="width: 746.012px;"><em>Source: HKEx announcements</em></td>
</tr>
</tbody>
</table>
</div>
<div>
<h3>The Takeaway from the Above</h3>
<ul style="list-style-type: disc;">
<li>Lansen has made significant gains from the sale of Starry. Cash on hand was US$103mn (~HK$800mn) as at 1H21, with a net cash position of US$73.88mn (~HK$575mn). Lansens held 0.3% of Starry as at 30 June. </li>
<li>Wu acquired 66.44mn shares (16.873%) at an average price of HK$1.84/share, outlaying HK$122.5mn. The highest price paid was ~HK$2.197/share. </li>
<li>Buybacks were 11.01mn shares (2.772% of shares out) at an average price of HK$2.71/share, outlaying ~HK$30mn. The highest price paid was probably ~HK$2.85/share. Buybacks accounted for ~40% of daily volume, on average.</li>
<li> Lansen is not a large, nor liquid company. But it was a potential privatisation play.</li>
<li>After gaining another 35% in the preceding week, on 15th July when shares were changing hands at HK$3.75,  I said (in the discussions section at the bottom of <em><a href="https://skr.ma/fNHVa" target="_blank" rel="noopener">Lansen Pharma (503 HK): This Is Still A Buy</a></em>) that "<em>my pound-the-table recommendation is wavering, given the 260+% gain since Wu started buying last December.  I think the risk/reward has shifted at current levels</em>".</li>
<li>Shares closed yesterday at HK$2.23.</li>
</ul>
<hr>
<h3>The New News</h3>
<ul>
<li>Concurrent with its interim results, Lansen <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0831/2021083102226.pdf" target="_blank" rel="noopener">announced</a> a special dividend of HK$1.55/share. </li>
<li>That's equivalent to ~HK$599mn assuming shares recently bought back are canceled. </li>
<li>The record date is the 16 September, with payment on the 28 September.</li>
</ul>
<p>The idea of a small-cap company returning excess cash to shareholders is a welcome change; however, my initial reaction was that there could may be some degree of disappointment the preceding events didn't (so far) lead to a takeover. And the back-end will now focus on the lackluster underlying business ops.</p>
</div>
<p>Not to be. Not even close. Shares gained 33% today to close at HK$2.97.</p>
<p>This is your cue to exit.</p>
</div>


Specialty prescription drug manufacturer Lansen Pharmaceutical Holdings Co, Ltd. (503 HK) has been a terrific little earner since December last year.

But first, some background information to bring us up to date:






Date


Data in the Date



9-Mar-16

Zhejiang Starry Pharmaceut-A (603520 CH) (Starry) specialises in the research and development, manufacture, marketing, and sales of bulk pharmaceuticals and intermediates.  One of the core products of Starry is iohexol for X-CT non-ionic contrast agents. Starry is the largest generic drug manufacturer of iohexol's active pharmaceutical ingredients in China.  Starry IPO-ed on the Shanghai Stock Exchange on 9 March 2016.  Lansens's equity interest in Starry was diluted from 21.5% to 16.1%, which constituted a disposal of an associate. 



FY17
Lansen sold down its stake in Starry to 12.6% as at Dec-17


FY18
Lansen sold down its stake in Starry to 10.8% as at Dec-18


FY19
Lansen sold down its stake in Starry to 4% as at Dec-19


FY20

Lansen sold down its stake in Starry to 1.3% as at Dec-20



29-Sep-21
Lansen's chairman Wu Zhen Tao made a Tender Offer for Cathay International. We, via his holding in common shares and A Shares, controlled 73.54% of the vote in Cathay. Cathay, in turn, held 52.83% of Lansen


3-Nov-21
Cathay's Tender Offer was approved by shareholders. 


11-Nov-21
Cathay's Tender Offer closed on the 11 November with 94.3% of the common shares and A shares held


1-Dec-21
A compulsory acquisition notice was issued by Cathay and was done and dusted by the 11 January this year.


11-Dec-21
Wu started buying shares in Lansen - aggressively. 41 separate incidences of buying, up to and including the 27 April, lifting his stake to 69.56%, from 52.83% initially.


23-Feb-21
Lansen sells more Starry shares and then held ~1.3%.


15-Apr-21
Lansen sells more Starry shares and then held ~0.9%


24-May-21
Lansen sells more Starry shares and then held ~0.3%.


2-Jun-21
Two days after the AGM, Lansen starting buying back shares, and proceeded to do so over a 10 separate trading days, stopping on the 26 July, prior to the earnings blackout.  Once canceled these buybacks lifted Wu's stake to 71.54%


31-Aug-21
Interim results released



Source: HKEx announcements





The Takeaway from the Above

Lansen has made significant gains from the sale of Starry. Cash on hand was US$103mn (~HK$800mn) as at 1H21, with a net cash position of US$73.88mn (~HK$575mn). Lansens held 0.3% of Starry as at 30 June. 
Wu acquired 66.44mn shares (16.873%) at an average price of HK$1.84/share, outlaying HK$122.5mn. The highest price paid was ~HK$2.197/share. 
Buybacks were 11.01mn shares (2.772% of shares out) at an average price of HK$2.71/share, outlaying ~HK$30mn. The highest price paid was probably ~HK$2.85/share. Buybacks accounted for ~40% of daily volume, on average.
 Lansen is not a large, nor liquid company. But it was a potential privatisation play.
After gaining another 35% in the preceding week, on 15th July when shares were changing hands at HK$3.75,  I said (in the discussions section at the bottom of Lansen Pharma (503 HK): This Is Still A Buy) that "my pound-the-table recommendation is wavering, given the 260+% gain since Wu started buying last December.  I think the risk/reward has shifted at current levels".
Shares closed yesterday at HK$2.23.


The New News

Concurrent with its interim results, Lansen announced a special dividend of HK$1.55/share. 
That's equivalent to ~HK$599mn assuming shares recently bought back are canceled. 
The record date is the 16 September, with payment on the 28 September.

The idea of a small-cap company returning excess cash to shareholders is a welcome change; however, my initial reaction was that there could may be some degree of disappointment the preceding events didn't (so far) lead to a takeover. And the back-end will now focus on the lackluster underlying business ops.

Not to be. Not even close. Shares gained 33% today to close at HK$2.97.
This is your cue to exit.


China

Zhejiang Starry Pharmaceutical Company Ltd. manufactures medical drugs. The Company specializes in the production of pharmaceutical raw materials and intermediates for the production of fluoroquinolones.

Zhejiang Starry Pharmaceutical (603520 CH)

Zhejiang Starry Pharmaceutical (603520 CH)

Lansen Pharma (503 HK): This Is A Buy

Net cash accounts for 84.6% of market cap. The offer for its parent implied a value of $3.82/share. The core underlying business of Lansen was...

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Lansen Pharma (503 HK): This Is Still A Buy

The privatisation of its parent implied a value of $4.28/share for Lansen. I think this still has more to run from here.

David Blennerhassett

Lansen Pharma (503 HK): 27th November Scheme Vote

It's an okay premium to last close, but enough for the Offer to get up. Trading wide at a 7.1%/51.1% gross/annualised spread. If small-cap,...

David Blennerhassett

Lansen Pharma (503 HK): The Chairman Makes An Offer

There's enough here for the Offer to get up. Terms have been declared final. Long-term shareholders would have also benefitted from the HK$1.55...

David Blennerhassett

Lansen Pharm (503 HK): Here Is Your Exit

A special dividend is a pretty good outcome. On a 24x ex-dividend basis - and with the "event" not announced - I'm disinclined to hold shares here.

David Blennerhassett