AOB Supplements Itself

It didn't take long to get an answer to whether another American Oriental Bioengineering (NYSE: AOB  ) buyout was in the works. After announcing an equity offering last week, AOB announced on Wednesday that it was acquiring Changchun Xinan Pharmaceutical Group Company Limited (CCXA), a privately owned Chinese health care company, for up to $30 million in cash.

AOB stated that CCXA markets health care products in China and also has manufacturing facilities that AOB could take advantage of. With privately owned companies, it can be hard to find good information on their businesses, so it's tough to make any evaluation as to what AOB is getting with this acquisition.

If you take its proclamations at face value, AOB stated that the acquisition should be accretive to its operations within one year of closing, and that CCXA was profitable on its own accord in its 2006 fiscal year.

This up to $30 million deal barely puts a dent in AOB's balance sheet. There probably are more acquisitions in the works for the company, considering that its share offering last week will raise $140 million or so in addition to the $90 million on its balance sheet.

Taking advantage of acquisitions has historically been AOB's source of revenue growth. Investors really have no way of knowing the quality of these acquisitions; they have to trust management's track record in past acquisitions of Chinese supplement and health care companies. For better or worse, then, AOB looks to have gotten a little bigger this week.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.


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