https://www.sec.gov/Archives/edgar/data/...94_18k.htm
As described in more detail below, on August 16, 2010, USANA Health Sciences, Inc., a Utah corporation (the “Company” or “USANA”), indirectly acquired BabyCare Ltd. (“BabyCare”), a limited liability company incorporated under the laws of the People’s Republic of China (“PRC” or “China”). BabyCare is a direct selling company in China that is principally engaged in developing, manufacturing and selling nutritional products for the entire family, with an emphasis on infant nutrition, through both a distributor sales force and a chain of retail centers. BabyCare has received a license from the Chinese government to engage in direct selling activities in the municipality of Beijing and is working to obtain similar licenses in other Chinese provinces. This direct selling license allows BabyCare to engage non-employee distributors to sell BabyCare’s products away from fixed retail locations.
BabyCare was founded in 1999 and is headquartered in Beijing, China. It has operations in 21 cities and 16 provinces. For fiscal 2009, BabyCare produced annual net sales of approximately $15 million and had total assets of $19 million. Historically, BabyCare has not been profitable under its retail-based model, but is in the process of transitioning to operate under its direct selling license. The Company believes that this acquisition of BabyCare is the most effective way for the Company to enter the direct selling market in China.
This acquisition was accomplished in the following simultaneous transactions. The Company acquired Pet Lane, Inc., a Delaware corporation (“Pet Lane”), which is the record owner of BabyCare in China. Simultaneously, the Company entered into and closed a share purchase agreement (the “Purchase Agreement”) by and among the Company and the following parties: Pet Lane; Yaolan Ltd., an exempted company organized under the laws of the Cayman Islands (“Yaolan”); and BabyCare Holdings, Ltd., an exempted company organized under the laws of the Cayman Islands (“BabyCare Holdings”). Pursuant to the Purchase Agreement, the Company, through its acquisition entity Pet Lane, acquired all of the issued and outstanding shares of BabyCare Holdings (the “Shares”) from Yaolan. BabyCare Holdings is the beneficial owner of BabyCare. As a result of its acquisition of Pet Lane and BabyCare Holdings, the Company, indirectly, has acquired both record and beneficial ownership of BabyCare.
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True, DS license is not transferrable but I don’t see why the acquisition of a company that owns a DS license by another company should not be allowed – be it “directly” or “indirectly”
“BabyCare” (a PRC incorporated company) was owned by a Delaware corporation (“Pet Lane Inc.” - the record owner) and Cayman Islands incorporated company (“BabyCare Holdings” – the beneficial owner).
Usana did not buy “BabyCare” directly, but instead indirectly bought the “overseas entities” that own BabyCare – hence “offshore transaction”. Many PRC properties had been transacted in similar ways.
As for BWI, it “directly” bought a PRC incorporated company (Solid Gold, subsequently renamed “BWZ”) that did not have a DS license – but has the qualification or eligibility to apply for one.
“For fiscal 2009, BabyCare produced annual net sales of approximately $15 million and had total assets of $19 million. Historically, BabyCare has not been profitable under its retail-based model, but is in the process of transitioning to operate under its direct selling license. The Company believes that this acquisition of BabyCare is the most effective way for the Company to enter the direct selling market in China.”
BabyCare had been operating under its retail model before 2010, which historically has not been profitable.
For fiscal 2009, its net sales ~ USD 15 million - but still not profitable.
It obtained its first DS license for Beijing city in 2009.
At the time it was acquired indirectly by Usana, it was still in the process of transitioning to operate under its direct selling license. In another words, Usana did not buy into a “DS ready business” though it had paid high premium for it.
BabyCare was going through the “transitioning” or “switch” process that every first time DS license recipient had to go through.
Having obtained its first DS license for Hangzhou this year, BWZ has to go through the similar “transitioning or switching” process that BabyCare had gone through………………………
In short,
Usana did not buy into a growing business (2009 sales of USD 15 m and not profitable.)
Usana did not buy into a “DS ready business” – in transitioning mode - though it had paid high premium for it.
Usana’s products were first introduced in BabyCare’s DS channels only in 2011.
But post acquisition, Usana’s greater China’s results have been looking impressive. What could possibly explain this?
Usana/BabyCare could possibly have done a good job in “switching” OR “switching”, after all, could be just an easy process.
More sales = more DS permits + introduction of more Usana products + more recruitment of distributors.
With so much works already been carried out by BWI/BWZ in preparation for the “switch”, what is the probability that its DS business in China would fail to take off? Pretty low, I reckon.
Dora reckons China would overtake Taiwan to become BWI's largest market within the next two to three years................will see......
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