October 31, 2017 Open Letter from Jayhawk Capital to Sanpower Group regarding China Cord Blood Corp

NEW YORK, Oct. 31, 2017 /PRNewswire/ -- The following is an open letter sent October 31, 2017 from Jayhawk Capital to Sanpower Group regarding China Cord Blood Corp (NYSE: CO).

As significant minority shareholders of China Cord Blood Corp (NYSE: CO), we want to congratulate Sanpower Group on the successful (pending) completion of your transaction with Golden Meditech Holdings Ltd. Your opportunity as majority shareholders to recognize and develop the intrinsic value inherent in China Cord makes us optimistic for all shareholders. As a result of our ongoing analysis, Jayhawk recommends you authorize the Board to tender for 20 million shares of China Cord at $15 per share.  We understand from the Board that they were unable to authorize share repurchases while the Golden Meditech transaction was pending.  Buying shares will increase Sanpower's ownership, restore confidence to minority shareholders by clearly aligning economic interests, and begin to partially reverse the over-capitalization of China Cord. Any shares purchased would be at a significant discount to the intrinsic value of the stock.

Our open letter of July 26, 2017 went through four alternative valuation methods averaging $59 per share.  This valuation was before the outstanding results announced in August (subscriber growth was 36% and a remarkable $33 million ($132 million annualized!) of cash flow was generated from operations).  Below are Jayhawk's pro-forma earnings estimates that treat the increase in deferred revenue as an addition to the revenue line.  This better reflects the economics of the cord blood business.  The pro-forma earnings also include the economics of China Cord's 24% ownership in Shandong Province Qilu Stem Cells Engineering Co., Ltd. ("Shandong"), resulting in an estimated $22 million of additional profits.  This information was attained from the public filings made by Nanjing Xinjiekou Department Store, a US$7 billion A-share listed company controlled by Sanpower, which bought the other 76% of Shandong on February 4, 2017 for US$1 billion.  Prior to this acquisition, there was no public information of the earnings of Shandong.

Jayhawk recommends China Cord tender for 20 million shares at $15 per share.  Spending $300 million on the tender offer would still leave China Cord with an estimated $525 million of cash on December 31, 2018, allowing for incremental share repurchases and a healthy dividend. Jayhawk looks forward to being a value added shareholder as Sanpower integrates the acquisitions of China Cord, Dendreon (acquired from Valeant), Natali (the Israeli nursing company), and the 76% of Shandong province.  Thank you for your consideration and attention to this matter. 

Yours faithfully,

Jayhawk Capital

SOURCE Jayhawk Capital