SHANGHAI Pharmaceuticals Holding Co. (Shanghai Pharma) has agreed to acquire Cardinal Health Inc.’s China drug distribution business for US$557 million, as it seeks to expand its distribution and retail network nationwide.

The acquisition will also help Shanghai Pharma, China’s third-largest drug distributor, become a leading importer of foreign medicine into the world’s second-largest drug market.

The deal, which includes shareholder loans, gives Cardinal’s business on the Chinese mainland and in Hong Kong an enterprise value of US$1.2 billion, equivalent to about 15 times its adjusted earnings before interest, taxes, depreciation and amortization for the year ended June, Shanghai Pharma said yesterday.

Cardinal Health put its China business up for sale in July over worries that the country’s upcoming drug distribution reform could slow its growth.

The sale drew keen interest from Chinese pharmaceuticals companies and private equity firms such as Warburg Pincus and Hong Kong-based FountainVest, sources with knowledge of the matter have said.

China introduced a “two-invoice” procurement system in January on a trial basis as part of an overhaul of the country’s fragmented health care sector aimed at streamling the distribution chain.

Under the new system, expected to be fully implemented in 2018, drug manufacturers can only work with a single distributor that directly supplies products to health care facilities such as hospitals.

Morgan Stanley and China Merchants Securities advised Shanghai Pharma on the deal, which is subject to an anti-monopoly review by China’s Ministry of Commerce.

(SD-Agencies)