SINGAPORE - Precision parts maker CDW Holding is selling part of its interest in a loss-making biotechnology subsidiary to the son of its controlling shareholder, in a surrender of its majority stake.
Tomoike Industrial (HK), a wholly owned CDW unit, inked a deal on Thursday (Sept 27) to divest 32.94 per cent of South Korean life sciences firm A Biotech Co (ABio) to Koichi Yoshimi for 2.95 billion won (S$3.63 million) in cash, according to an announcement released close to midnight. CDW had held 82.36 per cent in ABio before the deal, and will be left with just shy of half the company.
Under the transaction agreement, Tomoike also has the option, but not an obligation, to buy up to 140,000 shares in ABio from Mr Yoshimi - whose father, Kunikazu, owns 50.51 per cent of CDW - for five years after a proposed initial public offering. It will pay 85 per cent of whatever the ABio market share price is at the time that it gives notice of exercising the option.
Proceeds from the proposed disposal will be used entirely for working capital purposes, said CDW, adding that the sale consideration is worth about twice as much as the net asset value attributable to the shares, based on unaudited management accounts as at June 30.
No valuation was commissioned for the disposal, with negotiations based instead on valuations from an initial share issue to seven third-party subscribers in June, including ABio management.
The payment will be made in three tranches, with the last one due by Oct 31, 2019. The company also disclosed that CDW will receive three million yen (S$36,210) a month from ABio from Oct 1 to Dec 31, 2018, as fees under a joint research and development and assistance agreement.
CDW noted in its announcement that ABio was incorporated after Tomoike entered the life sciences business when it bought 95 per cent of synthetic antibody firm GSP Enterprise on Dec 31, 2017.
"The life science business, as undertaken by GSP and ABio, represents a non-core business of the group and ABio is not a principal subsidiary of the group," it said, adding that ABio's business is in a high-risk stage and highly dependent on cash flow.
Giving its rationale for the deal, CDW said that "the group wishes to realise some value of its initial investment in ABio and also to further align (with) the interest of Mr Yoshimi", who it called "instrumental in the early-stage development of ABio". It added that Mr Yoshimi already has a personal network of contacts in the research, government and pharmaceutical field, in Japan and South Korea.
After the disposal, Tomoike will have one director on the six-person ABio board, with three directors to be nominated by Mr Yoshimi, alongside two independent directors. "After the proposed disposal, the company will hold less than 50 per cent of ABio and does not exercise board and management control over ABio, and will no longer recognise ABio as a subsidiary of the group," said CDW.
CDW closed flat at $0.235 on Thursday, before the news.