(Yicai Global) April 3 -- State-controlled Zhejiang Traditional Chinese Medicine & Health Industry Group plans to invest nearly CNY3.5 billion (USD490 million) for a 20 percent stake in Conba Pharmaceutical, a TCM maker also based in Zhejiang, to become its largest shareholder.

Zhejiang TCM will buy the shares from controlling shareholder Conba Group for CNY6.5 (92 US cents) a share, a premium of roughly 19 percent over the Zhejiang-based target's closing price yesterday, the buyer said in a statement the same day. The deal will cut Conba Group's holding in the listed arm to 13.3 percent and make the Zhejiang State-owned Assets Management Committee its actual controller, replacing Chairman Hu Jiqiang.

Shares in Conba surged to the 10 percent daily limit in the morning session today but had simmered to CNY5.55, a 2 percent gain, when the markets closed. The benchmark Shanghai Composite Index fell 0.6 percent today.

The transaction is a strategic tie-up between local state-owned and private enterprises, Conba said, adding that itself and the new investor would leverage their talent and resources to build a development platform for the TCM and health sectors in Zhejiang.

Founded in 1990, Hangzhou-headquartered Conba is one of Zhejiang's leading pharmaceutical firms, but it forecasts it lost between CNY200 million (USD28.2 million) and CNY290 million last year because of a goodwill devaluation for subsidiary Guizhou Baite Pharmaceutical, according to Conba's preliminary earnings report published in January. It made CNY804 million in 2018.

Conba paid CNY1 billion for Baite Pharma in 2014, but sales at the unit slumped last year after China amended its catalogue of drugs suitable for national medical insurance and similar policies, according to Conba's report.

Editor: James Boynton