Chindex, Fosun Pharma form joint venture on manufacturing, distributing medical devices in China

Jun 14 2010

Chindex International, Inc. ("Chindex") (Nasdaq: CHDX), a leading independent American provider of Western healthcare products and services in the People's Republic of China, and Shanghai Fosun Pharmaceutical (Group) Co., Ltd. ("Fosun Pharma"), a leading manufacturer and distributor of western and Chinese medicine and devices in China, today announced that they have entered into a strategic alliance to utilize respective strengths in China's medical industry.

The strategic alliance includes the agreement on basic terms by Fosun Pharma and Chindex to form Chindex Medical Limited (the "Joint Venture"), a joint venture focused on manufacturing and distributing medical devices in China. The Joint Venture would merge and operate Chindex's Medical Products division and certain of Fosun Pharma's medical device businesses in China. The Joint Venture would be owned 51% by Fosun Pharma and 49% by Chindex. The closing of the Joint Venture is subject to the final negotiation and execution of definitive documents in accordance with a current term sheet.  

The strategic alliance also includes a definitive agreement by Fosun Pharma to purchase from Chindex up to 1,990,447 shares of Chindex common stock at $15 per share, which when aggregated with other Chindex shares owned by Fosun Pharma would gain Fosun Pharma up to 4,229,701 shares, representing a 25% ownership stake in Chindex, subject to certain stockholder limitations. The stock sale is expected to raise an aggregate of approximately $30.0 million, the net proceeds of which are expected to be used, among other things, to continue expansion of the Company's United Family Healthcare network. Under the terms of the agreement, the sale of the shares of common stock would be completed in two closings, the first of which is expected to occur in the second quarter of the current fiscal year, subject to certain customary closing conditions, and would relate to approximately one-half of the shares to be purchased. The closing of the balance of the shares would occur subject to the consummation of the Joint Venture as well as certain customary closing conditions.  In connection with the transactions, until the occurrence of certain events, Fosun Pharma has agreed to certain voting and standstill limitations.  The foregoing description of the agreements is qualified in its entirety by reference to the full text of the agreements filed today with Chindex's Form 8-K.

Roberta Lipson, President and CEO of Chindex said, "We are delighted to forge this landmark partnership with Fosun Pharma and we welcome their participation and expertise as one of our major shareholders.  Their credibility and presence in China is an asset to us as we execute our plan to build the leading network of premium care hospitals and clinics across the country.  This strategic alliance is mutually beneficial for several reasons and we are particularly excited about launching Chindex Medical Limited, our proposed joint venture in medical device distribution.  Fosun Pharma already operates business in this area, and the addition of our medical products division is a great fit which should drive scale and a deeper presence across China."  

Chen Qiyu, Chairman of Fosun Pharma said, "Fosun Pharma is pleased to be partnering with Chindex, including establishing Chindex Medical Ltd. Chindex is a well known name in the medical device markets in China. We look forward to leveraging both companies' strengths to consummate and grow the venture in the future. In addition, we are happy to be an important shareholder of Chindex as we believe both the Chindex and the United Family Healthcare brands have great potential as the demand for premium healthcare services accelerates along with China's growing economy.  We believe that United Family Healthcare is the leading private premium healthcare services brand in the country today."

Financial Impact of the Transaction

Income statement: Upon formation of the Joint Venture expected later this year, Chindex expects to no longer consolidate the results of its Medical Products division.  Using the equity method, the Company would recognize the proportional contribution from the Joint Venture. The use of the equity method would also reduce the volatility of the Company's revenue and income from operations of the division, which was experienced due to the timing of shipments of medical products.

Balance sheet: Upon closing, the stock sale is expected to raise an aggregate of approximately $30.0 million.  Chindex believes the increased capital will allow more rapid expansion of the United Family Healthcare network. Chindex currently has expansion projects underway in Beijing, Shanghai, Guangzhou and Tianjin. Additional development projects are under negotiation in Chengdu, Hangzhou, Qingdao and Dalian.