China vets baby brand Yumeijing’s merger with drug company

China’s State Administration for Market Regulation (SAMR) on May 16 announced a public consultation round on the merger of two Tianjin-based state-owned companies Tianjin Pharmacy Holdings Co., Ltd. (天津市医药集团有限公司) and Tianjin Yumeijing Group Co., Ltd. (天津郁美净集团有限公司). The merger is categorized as a simple case of concentration of business operators, whose combined market share is less than 15% in the same market. The consultation feedback window is set to be between May 16 and 25.


According to the amended Provisions on the Thresholds for Declaring Concentration of Business undertakings (《国务院关于经营者集中申报标准的规定》) enacted by China’s State Council in 2018, the market regulator shall be notified of a merger or acquisition for review under the Anti-Monopoly Law (AML) in terms of turnover on the part of undertakings in the preceding fiscal year: if the combined worldwide turnover of all undertakings concerned surpasses 10 billion yuan ($1.5 billion), and the nationwide turnover within China of at least two undertakings concerned surpasses 400 million yuan ($60 million) each; or if the combined nationwide turnover within China of all undertakings concerned surpasses 2 billion yuan ($300 million), and the nationwide turnover within China of at least two undertakings concerned surpasses 400 million yuan ($60 million) each.


Tianjin Pharmacy was ranked 36th on the list of China’s top 100 pharmaceutical companies of 2021 according to the statistics annually collected and published by the China National Pharmaceutical Industry Information Center (CNPIIC) under the Ministry of Industry and Information Technology (MIIT). The company’s main business is pharmaceutical drugs, with cosmetic products as its secondary line. It was founded in 1996 and currently has two subsidiaries listed on the Shanghai Stock Exchange (SSE) and three ones on the National Equities Exchange and Quotations (NEEQ). Tianjin Pharmacy reported a profit of 379 million yuan ($57 million) on sales of 10.56 billion yuan ($1.6 billion) between January and September, 2020, and a profit of 622 million yuan ($93 million) on sales of 11.37 billion yuan ($1.7 billion) between January and September, 2021.  


Since its inception in 1979, Tianjin Yumeijing, formerly Tianjin No. 2 Daily Chemical Factory, has been focused on developing and producing eponymous body care products and cosmetics, with its namesake trademark and brand “Yumeijing” almost recognized as a byword for proper baby skin care for its long kept impressive balance between price and value in China. The company reported revenue of 1 billion yuan ($150 million) in 2015 and a profit of 100 million yuan ($15 million) on sales shrunk to 800 million ($120 million) yuan in 2020. Tianjin Haisheng Yumei Equity Investment Partnership (Limited Partnership) (天津海胜御美投资合伙企业(有限合伙)) and Tianjin Bohai Light Industry Investment Group (天津渤海轻工投资集团有限公司) in 2018 acquired 87.7671% and 5.45% of the equity interests of Tianjin Yumeijin to become its largest and second largest shareholders respectively.


The Notice of Request for Public Comments on Simple Cases of Concentration of Business Operators (《经营者集中简易案件公示表》) published by the SAMR for this merger shows that Tianjin Pharmacy intends to acquire 87.7671% of the equity interests and the preemptive right to 1.1% of the equity interests of Tianjin Yumeijin being held by Haisheng Yumei. The cause for the merger to be listed as a simple case subject to anti-monopoly review is indicated to be “where the business operators participating in the concentration are in the same market, the combined market share of these operators is less than 15%,” ticked out of four optional causes. Under review are the two companies’ combined shares in three distinct markets—adult skin care products, baby skin care products, and baby bath products. According to the Notice, Tianjin Pharmacy and Tianjin Yumeijing take up an under 5% market share of adult skin care products respectively; Tianjin Yumeijing takes up under 5% market shares both of baby skin care products and of baby bath products respectively.


According to business data search company Qixinbao’s report on the Cosmetics Market Research by Region 2021 (《2021全国化妆品产业区域研究报告》), 97.68% of cosmetics manufacturers doing business in China are privately owned, with a total of 1.06% being wholly-foreign owned enterprises (WFOEs) and Sino-foreign equity joint ventures (EJVs), and 0.3% being state-owned enterprises (SOEs). The last figure can serve to cast some validatory light sideways onto the market share of the two state-owned companies to be merged.


China’s pharmaceutical industry is being fiercely shaken up, with the 2018 rollout of the government policy of volume-based procurement (VBP) to drive down medical bills and ever-rising research and investment capital requirements of innovative drugs. Statistics show that over 300 Chinese pharmaceutical companies, including well established ones such as Tong Ren Tang, Suzhou Xiehe, Zhejing Conba, and Harbin Sanjing, have expanded into cosmetics business to explore opportunities making the most of common characteristics between the two industries, though most of their forays are not specifically into the baby personal care segment, where Yumeijing instead has a proven track record. In this respect, American multinational corporation Johnson & Johnson, which started off manufacturing sterile surgical supplies, household products, and medical guides in 1886, and further moved into baby cosmetics in 1893 when Johnson's Baby Powder was introduced, can be a role model to inform the merger of Tianjin Pharmacy and Tianjin Yumeijing.