Whenever shares drop by nearly double-digit percentage points, something bad is usually amiss. Yesterday Chinese health-care nutritional supplement provider American Oriental Bioengineering
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
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