Whenever shares drop by nearly double-digit percentage points, something bad is usually amiss. Yesterday Chinese health-care nutritional supplement provider American Oriental Bioengineering (NYSE:AOB) suffered this fate after it announced that a large dilutive share offering was in the works.

AOB has 65 million shares outstanding, not including warrants. So the new equity offering of up to 15 million shares (not including the 2 million shares the founder and CEO is selling) represents up to 23% dilution to shareholders. Ouch!

The good news is that the offering could raise close to $150 million. This would make AOB's coffers flush with cash, considering that it already has over $90 million on its balance sheet. AOB has made numerous acquisitions in the past, and this financing could mean that a major acquisition is in the works for the company.

There's no way of knowing beforehand whether the assets AOB is considering are a good value or not. But its main method of boosting its top line has been via numerous acquisitions of formerly state-owned companies, so AOB can't be called inexperienced with buyouts. This strategy has helped the company grow its revenues 10 times over in the past six years, from less than $10 million in 2001 to over $110 million in 2006. AOB had operating cash flow of $29 million last year.

I'm generally very wary of China-based companies, especially ones doling out nutritional supplements and other, often pseudo-medicinal products. Nonetheless, AOB and other supplement manufacturers like NBTY (NYSE:NTY) have proven to be strong outperformers over the broader markets in recent years. How AOB chooses to deploy the cash that it generates from this offering will determine whether it can keep up this streak in the future.

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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.