Billed by analysts as the biggest-ever restructuring move in China's pharmaceutical industry, the massive acquisition well reflects the involved parties' ambitions to jointly foster a flagship establishment to better combat growing competition after China's entry into the World Trade Organization (WTO).

According to the deal signed on Wednesday, the Shanghai Huayi (Group) Co and the Shanghai Industrial Investment Group, who each hold a 50 percent stake in SPG, agreed to sell 20 percent of their shares to China Worldbest, thereby making the latter the controlling shareholder of the drug company.

The three companies will also expand their capital in SPG in proportion to their present stakes, involving a total investment of more than 160 million yuan (US$19.3 million).

"The stock restructuring will help combine the involved companies' competitive edges and optimize their market resources, thus creating a strong footing for the future growth of Shanghai's pharmaceutical industry," said Tang Dengjie, director of the Shanghai Municipal Economic Commission.

With a sales volume of nearly 13.58 billion (US$1.64 billion) last year, accounting for about 8 percent of the national total, SPG is regarded as one of the top-notch players in the domestic pharmaceutical industry.

Set up in 1992, China Worldbest first established its name in the domestic textile and machinery industry, and it has, over the past decade, grown into a big industrial group commanding 32 subsidiaries and four listed companies.

Against the backdrop of the Shanghai-based company's entry into and then large-scale expansion in the domestic pharmaceutical sector since 1999, the acquisition staged in the city came several months after its abortive plan to acquire a significant slice of shares in the Harbin Pharmaceutical Group Corp, another leading drug manufacturer in China.

"The acquisition is just a step in the overall development strategy of China Worldbest, but whether it can achieve the expected effect remains unknown," said Li Youqiang, an analyst at Haitong Securities Co Ltd.

When addressing the deal signing ceremony, Zhou Yucheng, chairman of China Worldbest, said that SPG's advantages largely lie in its sales network, asset size and strong industrial base after years of operation in the sector.

He added his company has a more competitive edge in terms of research and development (R&D), especially in the traditional Chinese medicine sector, and channels linking the vast overseas market.

The stock price of Shanghai Pharmaceutical Co Ltd, a locally listed subsidiary of SPG, closed at 14.14 yuan (US$1.7), posting a 1.73 percent growth over the previous day.

(China Daily August 23, 2002)