FOSTER CITY, Calif., June 8, 2017 /PRNewswire/ — SciClone Pharmaceuticals, Inc. (NASDAQ: SCLN) (the “Company” or “SciClone”) and a consortium consisting of entities affiliated with GL Capital Management GP Limited (“GL Capital”), Bank of China Group Investment Limited (“BOCGI”), CDH Investments, Ascendent Capital Partners and Boying (collectively, the “Buyer Consortium”) today announced that they have entered into a definitive merger agreement under which the Buyer Consortium will acquire all the outstanding shares of SciClone for $11.18 per share in cash. The transaction will be funded by the Buyer Consortium through a combination of equity financing to be provided by the Buyer Consortium and debt financing, and is not subject to a financing condition. The transaction, which was unanimously approved by SciClone’s Board, values the Company at approximately $605 million, on a fully diluted basis, and represents a premium of 11% over SciClone’s closing stock price on June 7, 2017 and a premium of 16% over its ten-day volume-weighted average closing stock price. The transaction, which is expected to close this calendar year, is subject to approval by SciClone stockholders and other customary closing conditions.
“The Board has determined that a sale of the Company at this time is the best way to deliver meaningful value to SciClone’s stockholders,” said Jon S. Saxe, Chairman of SciClone’s Board of Directors. “While SciClone has executed well on its growth strategies to date, following continued review of its strategic alternatives, the Board has determined that the challenges of continuing to operate as an independent US-based, publicly traded company in the complex, competitive and increasingly price-sensitive China pharmaceuticals market represent long-term risks to the Company’s ability to maintain a strong growth trajectory and to meet its financial objectives. This agreement enables SciClone stockholders to achieve substantial cash value and premium to the Company’s recent trading price in the near term and eliminates exposure to long-term risk and uncertainty.”
Friedhelm Blobel, Chief Executive Officer of SciClone said, “We believe that SciClone has reached the stage where its long-term future and strategic path forward can best be realized as part of a corporate entity based in and managed from China. We are proud of the company we have built, and believe that the Buyer Consortium is best positioned to continue growing the business, compete more effectively and invest the necessary resources to further serve our customers and provide high quality medicines to Chinese patients. We want to express our deep appreciation to our customers, partners, collaborators and employees. We are pleased to be able to provide near-term value to our stockholders while ensuring the long-term future of the Company.”
“On behalf of the Buyer Consortium, I would like to express my deep appreciation and admiration to the Board and the management of SciClone. They have done an impressive job navigating through China’s complex healthcare landscape and built the Company into the solid and successful business it is today,” said Jeffrey Li, founder and CEO of GL Capital. “We very much look forward to working with the Company’s management and its excellent employees in the near future. With the extensive local knowledge and vast resources brought by the various members of the Buyer Consortium, we are confident the Company will have a bright and promising future for all of its customers, patients, employees, and other stakeholders.”
Lazard is serving as exclusive financial advisor to SciClone and DLA Piper LLP (US) is serving as its legal advisor.
Morgan Stanley is serving as financial advisor to the Buyer Consortium and Skadden, Arps, Slate, Meagher & Flom LLP is serving as its legal advisor.
SciClone Pharmaceuticals, Inc. is a revenue-generating, specialty pharmaceutical company with a substantial commercial business in China and a product portfolio spanning major therapeutic markets including oncology, infectious diseases and cardiovascular disorders. SciClone’s proprietary lead product, ZADAXIN® (thymalfasin), is approved in over 30 countries and may be used for the treatment of hepatitis B (HBV), hepatitis C (HCV), and certain cancers, and as an immune system enhancer, according to the local regulatory approvals. The Company has successfully in-licensed and commercialized products with the potential to become future market leaders and to drive the Company’s long-term growth, including DC Bead®, a novel treatment for liver cancer. Through its promotion business with pharmaceutical partners, SciClone also markets multiple branded products in China which are therapeutically differentiated. SciClone is a publicly-held corporation based in Foster City, California, and trades on the NASDAQ Global Select Market under the symbol SCLN. For additional information, please visit www.sciclone.com.
About GL Capital
Established in 2010, GL Capital is a Greater China healthcare-focused, value-driven investment management group. Since inception, GL Capital has developed a reputation as the partner-of-choice for leading healthcare companies and demonstrated capability to add value to its portfolio companies.
BOCGI is the principal direct investment platform of Bank of China. Established in 1984, BOCGI has made extensive investment in various sectors benefiting from China’s economic growth.
About CDH Investments
Established in 2002, CDH Investments (“CDH”) is one of the largest alternative asset management institutions focused on China, with over US$17 billion in assets under management as of 31 December 2016. CDH has more than 100 investment professionals working in offices in Hong Kong, Singapore, Beijing, Shanghai and Shenzhen. Since inception, CDH has invested in more than 180 companies, and has helped more than 50 companies successfully list on the stock exchanges in the U.S., Hong Kong and China. Many of these companies are sector leaders, and, collectively, they play an important role in China’s economy. With its extensive network of business relationships and knowledge of China’s domestic economy, CDH is an ideal partner for global companies to tap on China’s growth potential.
About Ascendent Capital Partners
Ascendent Capital Partners (“Ascendent”) is a private equity investment management firm focused on Greater China-related investment opportunities, managing capital for globally renowned institutional investors including sovereign wealth funds, endowments, pensions, foundations and fund-of-funds. Ascendent aims to provide influential and informed capital to help portfolio companies achieve greater value, while generating the highest quality risk-adjusted returns for our investors. Ascendent is managed by a team with extensive experience in executing innovative and groundbreaking private equity investments in Greater China.
Boying Investments Limited is a wholly owned limited company of Mr. Weihang Zhu.
This press release, and the documents to which the Company refers you in this communication, contain forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent the Company’s current expectations or beliefs concerning future events, plans, strategies, or objectives that are subject to change, and actual results may differ materially from the forward-looking statements. Without limiting the foregoing, the words “expect,” “plan”, “believe,” “seek,” estimate,” “aim,” “intend,” “anticipate,” “believe,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements may involve known and unknown risks over which the Company has no control. Those risks include, without limitation (i) the risk that the proposed transaction may not be completed in a timely manner, or at all, which may adversely affect the Company’s business and the price of its common stock, (ii) the risk that the Buyer Consortium may fail to obtain financing, and notwithstanding that receipt of financing is not a closing condition, that the closing may not occur if Buyer Consortium is unable to secure adequate financing, (iii) the failure to satisfy all of the closing conditions of the proposed transaction, including the adoption of the definitive agreement by the Company’s stockholders, (iv) the occurrence of any event, change or other circumstance that could give rise to the termination of the definitive agreement, (v) the effect of the announcement or pendency of the proposed transaction on the Company’s business, operating results, and relationships with customers, suppliers and others, (vi) risks that the proposed transaction may disrupt the Company’s current plans and business operations, (vii) potential difficulties retaining employees as a result of the proposed transaction, (viii) risks related to the diverting of management’s attention from the Company’s ongoing business operations, and (ix) the outcome of any legal proceedings that may be instituted against the Company related to the definitive agreement or the proposed transaction. In addition, the Company’s actual performance and results may differ materially from those currently anticipated due to a number of risks including, without limitation: the Company’s substantial dependence on sales of ZADAXIN in China; the dependence of the Company’s revenues on obtaining or maintaining regulatory licenses and compliance with other country-specific regulations, including renewing the Company’s drug import license for ZADAXIN; risks and uncertainties relating to Chinese government actions intended to reduce pharmaceutical prices such as the reduction in some provinces of the governmentally permitted maximum listed price for the Company’s products and increased oversight of the health care market and pharmaceutical industry; risks related to existing and future pricing pressures on our products, particularly in China; SciClone’s ability to implement and maintain controls over its financial reporting; actual or anticipated fluctuations in the Company’s operating results, some of which may result from undertaking new clinical development projects, or from licensing or acquisition-related expenses including up-front fees, milestone payments, and other items; the Company’s ability to successfully develop or commercialize its products; risks related to the impact of the Company’s efforts to in-license or acquire other pharmaceutical products for marketing in China and other markets; the Company’s dependence of its current and future revenue and prospects on third-party license, promotion or distribution agreements, including the need to renew such agreements, enter into similar agreements, or end arrangements that SciClone does not believe are beneficial; risks relating to operating in China, including risk due to changes in regulatory environment, slow payment cycles and changes to economic conditions including currency exchange fluctuations; uncertainty in the prospects for unapproved products, including uncertainties as to pricing and competition and risks relating to the clinical trial process and related regulatory approval process and the process of initiating trials at, and enrolling patients at, clinical sites. Please also refer to other risks and uncertainties described in SciClone’s filings with the SEC, including but not limited to the risks described in SciClone’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2017. All forward-looking statements are based on information currently available to SciClone and SciClone assumes no obligation to update any such forward-looking statements.
Additional Information and Where to Find It
This communication does not constitute an offer to sell or the solicitation of an offer to buy the securities of the Company or the solicitation of any vote or approval. This communication is being made in respect of the proposed merger transaction involving the Company and the Buyer Consortium. The proposed merger of the Company will be submitted to the stockholders of the Company for their consideration. In connection therewith, the Company intends to file relevant materials with the Securities and Exchange Commission (the “SEC”), including a definitive proxy statement. However, such documents are not currently available. The definitive proxy statement will be mailed to the stockholders of the Company. BEFORE MAKING ANY VOTING OR ANY INVESTMENT DECISION, INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of the definitive proxy statement, any amendments or supplements thereto and other documents containing important information about the Company, once such documents are filed with the SEC, through the website maintained by the SEC at www.sec.gov. Copies of the documents filed with the SEC by the Company will be available free of charge on the Company’s website at www.sciclone.com under the heading “SEC Filings” in the “Investors and Media” portion of the Company’s website. Stockholders of the Company may also obtain a free copy of the definitive proxy statement and any filings with the SEC that are incorporated by reference in the definitive proxy statement by contacting the Company’s Investor Relations Department at (650) 358-1447.
Participants in the Solicitation
The Company and its directors and executive officers may be deemed participants under SEC rules in the solicitation of proxies from the Company’s stockholders in favor of the proposed transaction. Information about the Company’s directors and executive officers and their interests in the solicitation, which may, in some cases, differ from those of the Company’s stockholders generally, will be included in the proxy statement to be filed with the SEC in connection with the proposed transaction. Additional information about these directors and executive officers is available in the Company’s proxy statement for its 2017 Annual Meeting of Stockholders, which was filed with the SEC on April 28, 2017, and in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which was filed with the SEC on March 9, 2017. To the extent that holdings of the Company’s securities by the Company’s directors and executive officers have changed since the amounts printed in the latest proxy statement or Form 10-K, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 filed with the SEC.
Private equity investors in Asia are responding to an increasingly competitive deal- sourcing environment with a stronger focus on value-add, but successful implementation will require a cultural commitment
Rider Horse amounted to no more than a ranch in the backwater of Inner Mongolia when SMC Capital China first invested in 2012. Five years on, the company is China’s biggest equestrian trader with internationally connected operations in animal transportation, quarantining and inoculation. This evolution – estimated to have contributed to a 10x valuation increase – was guided by an SMC analyst who had no previous connection or experience with the horse industry per se.
After Siyao Zhao developed a passion for the business during the due diligence process, SMC backed her engagement as assistant to the Rider Horse’s chairman. The move precipitated a concerted cross-border expansion program that included establishment of a joint venture with a New Zealand feed production partner, ties to the Hong Kong Jockey Club and an introduction to one of Australia’s leading racing breeders.
“Through SMC’s value-add work in introducing leading horse industry operators in the Western world, coupled with Rider management’s strong execution, the company has quickly evolved into a successful integrated Western business model, with multiple revenue streams arising from both the goods and services sides,” says Hamilton Tang, CEO at SMC. “We hope this transformation will enable Rider to enjoy success in its eventual A-share listing.”
As SMC gears up to make Rider the first horse sports play to list on a Chinese exchange, a number of lessons about establishing an effective in-house value-add machine come into focus. The firm’s approach of combining patient talent cultivation with thoughtful procedural implementation is beginning to be seen as indispensable, especially as private equity investors face more intense competition in Asia’s emerging markets.
Whatever opportunity set an investor pursues, an operationally minded internal policy structure and culture is required to realize a plan of attack. Although PE firms often blame portfolio company management for failed value-add plans, most growth inhibitors trace back to poor execution of traditional GP inputs such as strategic command, resource provision and macro vision.
The most rudimentary playbooks take the shape of a 100-day plan, which now represents a de facto industry standard for initial monitoring of the operational, financial and competitive risks identified during due diligence. These programs are flexible and therefore more attractive to GPs with a tendency to eschew rigid workflow frameworks. As markets become less conducive to proprietary transactions, they are also being seen as an increasingly essential way of showcasing a competitive value-add edge.
More ambitious efforts along these lines have applied “blueprinting” or value creation plans that are customized according to various deal theses and case-specific factors such as ownership structure. Initiatives range from meetings between portfolio CFOs to share best practice knowhow to prioritizing situation-specific metrics in monthly flash reports. Although a vast majority of Asian GPs now include some kind of post-deal value creation targeting in their financial models, relatively few investors are disciplined at applying best-practice process exercises consistently across portfolio businesses.
“If you’ve truly found something in the diligence phase that you feel is unique and will drive value, you have to be able to translate that into action once you invest in the company,” says Vinit Bhatia, a partner with Bain & Company in Hong Kong. “That post-acquisition part is where most funds are not being as systematic and aggressive as they can be.”
Early involvement of partners with an operational background is often seen as the key to setting up more actionable post-deal plans. During the deal assessment stages, help identifying and quantifying value-add opportunities can diffuse pushback from a wary portfolio company management team and allow for a more seamless approach.
While value-add thinking has not yet been widely integrated into the due diligence work of Asian GPs, steps are being taken in the right general direction. For example, in an increasing number of deals the operations team is deployed as soon as the investment committee green lights initial post-diligence acquisition negotiations.
“We like our clients to get us involved pre-deal,” says Oliver Stratton, co-head of Asian operations for Alvarez & Marsal (A&M), a group that helps PE firms drive operational and financial performance improvement in portfolio companies. “It’s much easier for the investor and A&M to build credibility and implement changes post-deal if they’ve pretty much agreed it with targets before they’ve done the deal and ideally even had it written into legal agreements.”
Even legal agreements, however, can be difficult to rely on when working with a proud founder-owner with strong cultural control of a company and set ideas of how to proceed. In minority investment situations, early value-add talks are therefore perhaps most important in that they pave the way for a less defensive reception in future discussions about changing operational tact.
“These are not just legally negotiated rights – it’s art and science,” says Liang Meng, co-founder at China-focused mid-market GP Ascendent Capital Partners. “The scientific side is what’s in the contract, but the art is knowing as an investment team that you have the influence and the founders will actually listen to you. If your gut feeling tells you they just need the money and not your help, then don’t do the deal.”
Ascendent’s approach typically includes years of consultation as a third-party technical advisor to a company before an equity investment, usually a large minority stake, is even considered. As a result, the firm is able to erase the common PE stumbling block of transitioning from deal mode to value-add mode with an awkward handover of responsibility from the financial team to the operations team. Post-deal, a small in-house task force is built around the portfolio company based on longstanding relationships.
The downside to this strategy is low volume. Such labor-intensive and extended vetting means Ascendent only transacts 2-3 deals a year – but is considered necessary for the cultivation of credibility and proprietary value creation ideas. “If you’re doing more than a handful of deals a year, it is very challenging to provide the right level of value-add,” Meng continues. “You’re spreading your bets to ride the macro wave, and you don’t have the sufficient manpower, brain power or time.”
In this way, clout, goodwill and dependence are the foundation stones for value-add efforts launched by minority investors – with the possibility of assuming full ownership later on if a portfolio company proves inclined to exercise weak judgment in the face of business headwinds.
Indeed, control is increasingly a priority for GPs looking for returns in markets in which the focus is shifting from macro-driven top-line growth to bottom-line gains rooted in greater efficiency. LPs are conscious of this development too, resulting in greater scrutiny of how well-equipped private equity firms are to create stronger companies. At the same time, the maturing of these economies means more founder-owners are willing to consider full sales.
According to AVCJ Research, the number of private equity transactions realized in mainland China between 2011 and 2016 was 28% higher than in the prior five-year period, but buyout activity rose 80%. Likewise, the total number of Indian deals for the five years to 2016 was 45% higher than the prior corresponding period, but the volume of control transactions climbed 69%.
Whether participating in a minority of majority context, establishing a differentiated view of a company’s business drivers is at the core of any private equity value-add agenda. And given a typical diligence period may last no longer than 3-4 weeks, there is an imperative to quickly pressure test strategic angles based on information outside of the founding management’s scope.
“In Asia, most deals are still predicated on growth, so there’s a lot of focus on things like how penetrated the market is, can it keep growing and are prices stable,” Bain’s Bhatia says. “But there are more fundamental questions that need to be asked, such as how good is your sales force, how well do your customers really like your products versus your competitors. By gaining those insights, it could lead to things that are differential in the blueprint.”
A few proprietary levers of this kind will be needed on both ends of cash flow equation. For example, if customer loyalty has not yet been nominalized in company metrics, go-forward plans might consider cross-selling or upselling products instead of seeking additional customers. Where cost control rather than top-line growth is the priority, care will be needed itemizing which specific expenses have to be addressed and how this can be done without undermining the rest of the organization.
Data collection is at the heart of this effort. The best analysis will transcend financial intelligence to encompass a broad set of forward-looking indicators and operational metrics around difficult-to-quantify areas such as customer satisfaction. Points of study may include information not usually associated with the target industry, be it distantly related commodity price trends or projections on the business pressures that could impact the reliability of critical corporate clients in other sectors.
Differentiated viewpoints will also be grounded in team profile, especially as investment and operational partners collaborate more closely on due diligence. As a result, private equity firms are increasingly obliged to follow the cues of the consulting services sector by putting more emphasis on so-called EQ, or emotional intelligence, social skills.
“There is a tendency to hire people from MNCs [multinational corporations] with impeccable operational experience, which is not necessarily the wrong thing to do, but I think personality is more important,” says Waikay Eik, a deals partner who focuses on value creation for PwC’s Greater China private equity team. “A lot of senior people say they understand entrepreneurial problems and the basic issues that exist in early-stage businesses, but they don’t want to go back in and fix the plumbing again.”
This dilemma is particularly prominent in Asia, where many elder professionals have little patience for the minutia of operational clean-up, but cultural issues make it harder for younger, more engaged partners to exert sufficient influence. Further, the region’s relatively short history with PE and its broad diversity of languages, cultural norms and geographical factors have cramped relevant talent pools, forcing most GPs to make staffing compromises.
The limitations and demands in Asian talent often play into the “all-in-one” model of GP team building, whereby a senior partner is expected to know strategy and operations as well as how to lead the deal team. The all-in-one boss is often a good fit for the value creation needs that are most common in Asia such as tighter financial reporting and growth planning. However, the former CEOs of conglomerates who are often poached for this position are typically characterized by the industry as brand ambassadors rather than practical, hands-on operators.
The all-in-one model therefore tends to make considerable use of outsourced advisors, including boutique specialists that focus on PE portfolio work. The approach can be further supported by adding value-add experience to the deal team without establishing a formal operations unit. Variations on these themes can be seen in The Carlyle Group, which brought in former Coca-Cola Asia President Patrick Siewert as its consumer retail guru, and Bain Capital, which puts a strong emphasis on hiring internal leadership with a consulting background.
Other large firms including TPG Capital build almost entirely in-house teams, with all functional expertise ready for deployment on a deal-by-deal basis. KKR combines elements of both boutique outsourcing and in-house reliance with KKR Capstone, a separately managed operations firm which uses the KKR name under license but benefits from access to synergistic value-add opportunities in the PE giant’s extensive portfolio.
Smaller GPs, meanwhile, need to selectively place their bets on generalist knowhow and where to go deeper with sectional or functional expertise. Having someone on deck who can step in to run a business if needed is a typically sought-after downside risk protection mechanism, although pre-hiring portfolio CEOs is not advised.
SMC takes a hybrid staffing approach that includes a group of operations-focused venture partners who periodically complement a number of specialized full-timers who are able to work across the portfolio. For example, the firm leans heavily on specially contracted value-add advisory from beverages industry entrepreneur George Chen while Zoe Zhu, the in-house human resources director, focuses almost entirely on the recruitment needs of investee companies.
“As growth-stage investors, it is uncommon to find a company that has a four or five-deep management team,” says SMC’s Tang. “The management teams of companies we encounter often need to be strengthened to support the growth of the company, so we have to roll up our sleeves and help them, from senior additions to strategic business introductions to running board meetings.”
SMC augments its approach of being relatively light on dedicated in-house operational staff by producing Chinese-language manuals on best-practice governance for portfolio companies. The material covers topics as basic as why board meetings should be held and the meaning of a quorum. But it also offers guidance on more nuanced business development challenges, including how to set up attractive compensation packages in China’s unwieldy regulatory environment around pensions and benefits.
Compensation represents an important issue in setting up value-add infrastructure within a GP. Indeed, a commonly circulated maxim states that one can judge how much a PE firm values its professionals by how much carried interest it shares among them. Nevertheless, many firms do not allocate a significant portion of the economics to operating partners, resulting in a division of interests, internal tensions and difficulty attracting top talent to the ops team.
“The importance of operational value-add to a firm’s performance can be assessed by looking at the firm’s DNA, the ‘technology’ of how operating partners and financial partners work together, how many senior operational staff the firm has, how the economic pie is split among the operating partners and financial partners, and the engagement model of the firm with its portfolio companies,” says James Ahn, managing director at CD&R.
CD&R is regarded as a pioneer in value-add, with an operational model has been in place for 40 years. It focuses on alignment by formally partnering a financial partner with an operating partner at every step of an investment from transaction sourcing to exit.
The growing demand to institutionalize similarly oriented value-add protocols, however, goes beyond internal team unity or even realizing consistency in company-building performance. This is because the strategy is ultimately a reflection of the underlying culture of a firm and, as such, is set to be a chief concern among LPs during fundraising rounds to come.
“It’s very difficult to assess whether GPs truly value operational involvement in portfolio companies, but that’s what investors who commit capital to funds like ours are doing,” adds Ahn. “It’s about executing internally with the same level of rigor that you expect your portfolio companies to execute on. It’s not rocket science, but people don’t do it because it takes time, and there’s only 24 hours in the day.”Source: http://www.avcj.com/avcj/analysis/3003739/asia-value-creation-internal-repairs