February 14, 2018 / 4:22 AM / 12 days ago

China's Harbin Pharma to buy stake in U.S. health retailer GNC

HONG KONG, Feb 14 (Reuters) - China’s state-controlled drugmaker Harbin Pharmaceutical Group Holding Co will buy an about 40 percent stake in U.S. nutritional supplements retailer GNC Holdings Inc for $300 million and are in talks for a joint venture in China, the companies said.

GNC has agreed to sell 299,950 convertible preferred shares to Harbin Pharma at $1,000 apiece, the U.S. firm said in a filing to the Securities and Exchange Commission on Tuesday.

The two companies are also looking to set up a China joint venture, which would be 65 percent owned by Harbin Pharma.

The Chinese firm, which will become the largest shareholder in GNC, will have exclusive rights to use the U.S. firm’s trademarks and manufacture and distribute its products in mainland China, and GNC will receive royalties on all products sold by the joint venture, the companies said in a statement on Tuesday.

Reuters reported in September that GNC was seeking a partner to boost sales in China as it battles weak revenues and a slide in share price.

GNC’s stock had halved in value over the last 12 months, as of its close on Monday. The stock surged 18 percent on Tuesday on the New York Stock Exchange.

Trading in Harbin Pharma shares has been suspended since Sept. 28 last year, pending ownership change and assets reorganization, according to its filings to the Shanghai Stock Exchange.

The deal comes at a time when GNC faces growing competition from online rivals and amid a wider move among customers toward organic foods rather than supplements. China, however, has been a bright spot for GNC, which sells vitamins and herbal supplements, and has become one of the top sellers on China’s online shopping platforms. Harbin Pharma produces more than 20 dosage forms and over 1,000 drugs, including antibiotics, over-the-counter products, modern Chinese medicines, and animal vaccines. CITIC Capital Holdings Ltd, the private equity arm of state-owned Citic Group Corp, is a major shareholder in Harbin Pharma.

A definitive agreement on the China joint venture is conditional on the deal’s completion.

Goldman Sachs & Co was GNC’s financial adviser on the deal, while Morgan Stanley & Co LLC and PingAn Securities advised Harbin Pharma, the companies said. (Reporting by Kane Wu; Editing by Amrutha Gayathri)

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