Recently, SIIC Medical Science and Technology Ltd (subsidiary of Shanghai Pharmaceuticals Holding Co Ltd), PV Zeus Ltd (subsidiary of Primavera Capital Fund II L.P.), Primavera Capital Fund II L.P. and Shanghai Pharmaceuticals Holding Co Ltd have entered into a Scheme Implementation deed for acquisition of the Australian vitamins company, Vitaco Holdings Ltd (ASX: VIT), for around A$313.7 million ($239 million), which was otherwise valued around A$292 million. This has come at the back of the China’s cross-border e-commerce regulatory changes that have caused a jitter across Australian vitamins industry. Even, Blackmores and Swisse, have been impacted by the latest China’s move.
 
Chinese companies this year, had announced for more than $3.9 billion of overseas acquisitions in pharmaceutical, biotechnology and medical healthcare sectors and are expecting to surpass the record set last year. Thus, many players like Vitaco have been eyed by Chinese companies as takeover targets. For instance, CSPC is one of China’s leading pharmaceutical companies, and Chinese health companies, Beijing Scrianen and Ningbo Nuscan, are all on the lookout to buy pharmaceutical, health and pharmacy chains. On the other hand, many brands operate through grey market, where the product is bought in Australia and posted to China undeclared. To crackdown the grey market, the Chinese Government has introduced the regulatory changes. However, for the listed companies like Blackmores who depend on China for profits, uncertainty about the regulations has hit the stock prices. On the other hand, the Chinese tourists visiting Australia, students studying at the Australian universities, and Chinese migrants have all helped the boom of the vitamins and supplement sector. Chinese consumers have also been seen opting for reputed international brands that come from Australia. So to say, China has been a key destination for Australian vitamin companies, but the regulatory changes need to be watched cautiously.
 
With this backdrop, Vitaco has always been considered a good takeover target as it has been expected to grow as a key vitamins and dietary supplements business and to surge to around $20 billion by 2018. Vitaco stock has risen over 30.38% in the last six months (as of December 02, 2016). The group is scheduled to have a hearing on December 06, 2016 at the Federal Court of Australia for approval of the Scheme of arrangement for the acquisition. The last day of trading in Vitaco shares is expected to be December 6, 2016, if the above falls in place, and shareholders are to be paid $2.2204 in cash for each share in December 16, 2016. We believe the move to be a favorable one for the shareholders, and the recommendation coverage for Vitaco shall stand closed at the price of $2.2204 subject to the requisite approval from the Federal Court.

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