Shanghai Pharma bids for U.S. Cardinal Health's China business

By Julie Zhu HONG KONG (Reuters) - Shanghai Pharmaceuticals Holding Co has bid for Cardinal Health Inc's China business as the U.S. company looks to sell ahead of China's planned drug distribution reform. Shanghai Pharma submitted two non-binding bids to buy Cardinal Health China, one of the country's largest drug distributors, on July 21 and Sept. 15, it said in a filing with the Shanghai stock exchange on Wednesday. The company, backed by the Shanghai government, did not disclose the financial terms but said it has not entered into exclusive talks with the seller. Reuters first reported in July that Cardinal Health had put its China business up for sale in a deal that could fetch between $1.2 billion and $1.5 billion. The sale has drawn keen interest from state-backed Chinese pharmaceuticals companies and private equity firms such as FountainVest, said sources with knowledge of the matter. Cardinal's China business, which operates 16 distribution centers in 20 cities, generated more than $3.5 billion in revenue last year, compared with $3 billion in 2015, according to its earnings report. It has hired Lazard as an adviser for the China sale, according to the sources. FountainVest did not respond immediately to requests for comment and Lazard declined to comment. The sources asked not to be identified because the talks are not public. Beijing in January introduced a so-called "two-invoice" procurement system for drug distribution on a trial basis as part of a broader overhaul of the country's fragmented healthcare sector. Under the new system, expected to be fully implemented in 2018, drug manufacturers can only work with a single distributor that directly supplies products to healthcare facilities such as hospitals. The policy is likely to squeeze margins for many distributors that lack links to strong manufacturers and healthcare facilities in China. In spite of the overhaul, state-owned pharma companies with strong backing from Beijing to create "national champions" in key industries have been looking to expand. Shanghai Pharma, for example, said in August that it was bidding for a stake in U.S. specialty drugmaker Arbor Pharmaceuticals. (Reporting by Julie Zhu; Additional reporting by Kane Wu; Editing by Biju Dwarakanath and David Goodman)