NEW YORK, June 28, 2018 /PRNewswire/ -- The following is an open letter sent June 28, 2018 from Jayhawk Capital, a significant minority shareholder of Global Cord Blood Corp (NYSE: CO), to Sanpower Group regarding Global Cord Blood Corp (NYSE: CO).
Congratulations on finally completing the purchase of the majority stake of Global Cord Blood Corp (NYSE: CO). We are disappointed we have been unable to set up a meeting with you despite our repeated attempts both directly and through our lawyers and investment bankers. We are equally disappointed that there still is no plan to return some of the US$677 million to the long-suffering shareholders of CO. There is a lot of confusion in the marketplace regarding the Bloomberg articles in which Chairman Yuan Yafei said Sanpower would pursue an A-Share listing of the Company "in the fastest way" followed by the announcement from Nanjing Xinjiekou Department Store ("NXD") denying the plans. Since these announcements, the stock price has declined 25% and is down over 50% over the last 9 months, despite surging cash flow growth. We hope that Sanpower is not trying to suppress the stock price in order to attempt to privatize the company at a low price.
Operating cash flow increased 28% in fiscal 2018 to US$130.5 million. The Company's 24% share of the Shandong license would add approximately US$30 million more, bringing effective free cash flow to over US$160 million. With a market cap of US$1.1 billion and cash of US$677 million plus the value of Shandong (over US$500 million), CO's valuation is non-sensical. It is a reflection of the Company's failure to return cash to shareholders.
The Directors and majority shareholder of CO continue to have a legal duty as fiduciaries to act in good faith in the best interests of the company i.e., the common interests of all shareholders. We ask that you authorize the Board of CO to discharge your fiduciary duties by immediately tendering for 20 million shares at US$12 per share and instituting an ongoing dividend of at least US$1.00 per share. Doing so would leave over US$300 million of cash on the balance sheet. This would be in the best interests of all shareholders of CO as it will increase your ownership and other shareholders at a significant discount to intrinsic value. Buying shares would increase Sanpower's ownership, restore confidence to the minority shareholders that economic interests are aligned, and begin to reverse the overcapitalization of CO resulting from the unnecessary convertible bonds, restricted stock unit plan and build-up of cash on the balance sheet.
Jayhawk reserves all of its legal rights, including the right to protect itself by recourse to the courts in the United States and Cayman Islands. If a privatization offer is made, Jayhawk plans to challenge such an offer in the strongest terms.