The planned acquisition of a controlling stake, which had been in the works for nearly two years, has concluded through a method described as "targeted capital reduction and offsetting of debts and credits."
Beijing Tong Ren Tang Co.,Ltd. recently announced that its controlling subsidiary, Tong Ren Tang Commercial, has formally terminated the acquisition of a 51% stake in Honghui Pharmaceutical. The originally agreed transaction price of 105 million yuan was settled through an offsetting arrangement, resulting in no actual outflow of funds.
Key Triggers for the Deal's Termination
The immediate reasons for calling off the acquisition point to a deterioration in Honghui Pharmaceutical's financial health. According to the announcement, a special audit for the equity transfer revealed that as of October 31, 2024, Honghui Pharmaceutical's consolidated net assets had fallen to 152 million yuan. This figure was lower than the audited net asset amount as of the assessment reference date of January 31, 2024, thereby triggering the closing audit clause in the Equity Transfer Agreement. Concurrently, an analysis of Honghui Pharmaceutical's performance exposed profit volatility issues, compelling both parties to re-evaluate the transaction.
It is noteworthy that this was not the first time the deal was paused. As early as April 4, 2025, Tong Ren Tang had issued an announcement suspending the execution of the original agreement and postponing the closing, at which point the 52.3186 million yuan already paid was converted into an intention deposit, with management handover matters pending renegotiation. Four months later, the two parties signed an "Implementation Agreement" to pave the way for an exit, ultimately achieving a separation through the targeted capital reduction method. Honghui Pharmaceutical also committed to renaming itself, agreeing not to use the "Tong Ren Tang" name after July 31, 2025.
Financial Settlement Through Offset
Although the transaction was terminated, the funds were not lost for Tong Ren Tang. The announcement details that Tong Ren Tang Commercial exited Honghui Pharmaceutical via a targeted capital reduction, with a reduction price of 105 million yuan, matching the original acquisition price. Simultaneously, the debt claim Tong Ren Tang Commercial held against Honghui Pharmaceutical for this capital reduction amount was offset against an equal debt obligation it owed to Honghui Technology for the equity purchase price. Following this offset, Tong Ren Tang Commercial was not required to pay the equity purchase consideration to Honghui Technology, and Honghui Pharmaceutical did not need to pay the capital reduction amount to Tong Ren Tang Commercial.
This means that, from start to finish, the 105 million yuan transaction consideration did not actually flow out of Tong Ren Tang Commercial. The company also emphasized in its announcement that this termination of the investment would not have a material impact on its financial condition or operating results and was beneficial for controlling investment risk and safeguarding the common interests of all shareholders.
Setback in Expansion Strategy
Tong Ren Tang Commercial, as the operating entity for the listed company's pharmaceutical distribution segment, holds a significant position. In 2025, it generated operating revenue of 9.728 billion yuan and a net profit of 184 million yuan, accounting for over 10% of Tong Ren Tang's total net profit. As of the end of 2025, Tong Ren Tang Commercial operated a network of 1,279 stores, primarily focused on offline retail and covering key cities nationwide.
With this setback in its external expansion efforts, Tong Ren Tang's push into healthcare channels will now have to rely more heavily on organic growth. According to its 2025 annual report, the company is actively working to increase product coverage in hospitals, has established an e-commerce subsidiary, and is strengthening cooperation with major e-commerce platforms, employing multiple measures to expand its marketing channels. However, current indications suggest these investments have not yet translated into a market coverage breadth sufficient to alter the channel structure, with the company's channel strategy still centered on "retail as the main body, supplemented by healthcare."
For Tong Ren Tang, which is seeking new growth avenues, this termination undoubtedly represents a setback. From a medium- to long-term perspective, how to balance the dual pillars of retail and healthcare, and find a breakthrough point in the healthcare market that suits the company, remains a critical challenge for management to address.
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