On November 28, Shandong Keyuan Pharmaceutical Co.,Ltd. announced the termination of its major asset restructuring plan to acquire 99.42% equity in Hongjitang Pharmaceutical via share issuance, simultaneously withdrawing its matching fundraising application. This deal, initiated in October 2024 as a crucial step for internal pharmaceutical asset integration within the "Linuo Group," came to an abrupt halt after over a year of progress.
The company attributed the termination to "changes in overall market conditions," emphasizing protection of shareholders' long-term interests. However, market reaction was sharply negative: shares plunged nearly 7% on the first trading day post-announcement, followed by another 4.5% drop the next day.
This termination not only dashes Linuo Group's multi-year industrial synergy vision but also exposes fundamental risks in the创业板-listed pharma company's expansion strategy.
01 Financial Strain: Declining Performance Can't Support Premium Valuation As the acquirer, Keyuan Pharma's profitability has been weakening. Since its 2023 IPO, net profit has consecutively declined: 3% YoY drop in Q1-Q3 2023, 41% plunge in 2024, and 21% decrease in 2025's first three quarters.
Amid this pressure, the proposed RMB 3.581 billion acquisition of Hongjitang—with 60.54% valuation premium—risked significant EPS dilution and heavier financial burdens. Though Hongjitang boasts century-old brand value exceeding RMB 16 billion, its performance commitments only covered revenue targets without profit guarantees, creating risk asymmetry against Keyuan's deteriorating earnings.
02 Related-Party Risks: Questionable "Left-Hand-to-Right-Hand" Deal Structure The acquisition essentially involved Linuo Group's internal restructuring. Both companies are controlled by Jinan's former richest man Gao Yuankun, with 38 Linuo-affiliated parties involved. The share-based payment at RMB 16.7/share and planned RMB 700 million fundraising raised market suspicions about inflated valuation and potential benefit transfers. Notably, Hongjitang's lack of net profit commitments—while compliant—skewed risk allocation toward sellers, undermining deal credibility amid tightening regulatory scrutiny of related-party transactions.
03 Industry Shifts: Cold Reality of Cross-Sector Pharma M&A China's pharmaceutical sector faces structural reforms, with volume-based procurement policies particularly impacting traditional medicine valuations. Though Hongjitang's flagship products like Angong Niuhuang Wan hold market positions, they face pricing pressures. Capital markets have grown wary of "chemical+traditional medicine" mergers after multiple failed synergy cases, challenging the rationale for premium deals.
While the termination caused short-term stock volatility, it likely spared Keyuan from post-M&A valuation hangover, allowing refocus on its core chemical API business. For Linuo Group, this marks a setback in consolidating pharmaceutical assets through listed platforms, leaving Hongjitang's capitalization path uncertain—whether through independent IPO or alternative routes.
For Keyuan Pharma, this episode underscores the urgency to stabilize core operations and improve profitability during industry transformation, proving more critical than external expansion. This unfinished M&A ultimately serves as a case study in pharma expansion logic, related-party risks, and cyclical challenges—where rationality and prudence emerge as paramount virtues when market euphoria fades.
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