SHANGHAI/LONDON/FRANKFURT Shanghai Pharmaceutical Holding Co Ltd (601607.SS) said it may bid for Stada Arzneimittel AG (STAGn.DE) - a move that would pit it against buyout firms Bain and Cinven which have made a joint offer of nearly $6 billion for the German generics drugmaker.
The Chinese company said in a filing it had recently discussed the matter with "a couple of financial investors" but added it had not made a concrete offer and there were still many uncertainties.
Shanghai Pharma, which has a market value of $9 billion, needs to submit its bid by June 8 if it wants to challenge an existing 66 euro-a-share bid by Bain and Cinven which was agreed on April 10 and was conditional on securing 75 percent of Stada's shares.
Any new offer would trigger a separate offer period, which might run in parallel to the existing one. Bain and Cinven, in turn, would have to decide whether to top up their offer, which would prolong their offer period, or let it expire on June 8.
But any takeover attempt by Shanghai Pharma would need the blessing from Beijing which recently introduced restrictions on outbound foreign investment to try to curb capital outflows.
Sources close to the matter said Lazard is advising Shanghai Pharma on its takeover plan which would involve forming a consortium with a private equity investor.
European buyout fund Advent has held talks with Shanghai Pharma, another source said, while cautioning that it was unclear whether an agreement for a joint bid had been reached.
Lazard, which declined to comment, would need to help Shanghai Pharma navigate governance and financing hurdles that may prove a major stumbling block, the sources said, adding it was unclear whether private equity investors would be offered a majority stake.
Buyout funds typically seek control of the companies they buy to maximize their investments in three to five years and then sell or list them for a profit. Any joint offer with an industry player may limit their ability to decide on future strategy.
China became Germany's most important trading partner for the first time in 2016.
However, Germany and China last year engaged in an increasingly public dispute over market access, with China complaining about what it regarded as unfair scrutiny of its acquisition targets in Germany, and Germany seeking a more level playing-field for its companies in China.
Shanghai Pharma would also need to secure financing for its offer in a short period of time, the sources said, with one adding the Chinese firm faced the same funding issue when it started working on the dossier earlier this year.
Bloomberg reported this week that Shanghai Pharma, along with Advent, was discussing a bid of about 70 euros a share.
But Shanghai Pharma, which last year posted 120 billion yuan in sales, said the reported offer price was "inconsistent with reality".
Stada said it had not been notified of any rival offer.
Bain and Cinven's 5.3 billion euro offer had beaten a rival consortium of Advent and Permira, and had carried a premium of 49 percent over Stada's Dec. 9 share price, before the first report of a takeover approach.
Shanghai Pharma will need to move fast if it wants to outbid Bain and Cinven as any new offer has to be vetted by Germany's financial regulator BaFin.
The German watchdog grants bidders a window of four weeks to hand in their official takeover documents after launching a public offer, and has 10 working days to approve them.
This means Shanghai Pharma can wait until June 8 to announce its offer and will then need to engage with BaFin, whose approval marks the start of the offer period.
In the meantime Stada's shareholders would likely refrain from tendering their shares to Bain and Cinven and hold out for Shanghai Pharma's full higher bid.
(Additional reporting by Arno Schuetze and Ludwig Burger in Frankfurt; Editing by Keith Weir)