Details on the injection of arrhythmia management business into CARDIOFLOW: The deadline for the bet between the minimally invasive system and Hillhouse Capital is approaching?

The "old player" in spin-off listings, MicroPort Scientific Corporation (0853.HK), is no longer pursuing spin-offs and has begun to focus on mergers and reorganizations.

On July 17, MicroPort announced plans to merge its cardiac rhythm management business with its subsidiary, CARDIOFLOW-B (2160.HK).

Regarding the reasons for this business integration, MicroPort stated that it could establish a cardiac product platform and share international marketing and sales channels.

This plan is currently a non-binding proposal.

"The proposal is non-binding and there is no certainty that it can be executed or completed. Shareholders and potential investors of the company should exercise caution when trading the company's securities," MicroPort pointed out.

Nevertheless, on July 17, MicroPort and CARDIOFLOW-B saw their stock prices rise by 6.6% and 7.21%, respectively.

If MicroPort's cardiac rhythm management business can be successfully injected into CARDIOFLOW-B, the latter's performance scale is expected to achieve a leap.

As one of the "three giants" in TAVR (transcatheter aortic valve replacement) alongside Qiming Medical (2500.HK) and Peijia Medical (9996.HK), CARDIOFLOW-B's commercialization progress has not been smooth, with revenues of RMB 362 million in 2024, while the net loss during the same period still reached RMB 49 million.

In contrast, MicroPort's cardiac rhythm management business is already substantial, with revenues reaching USD 221 million (equivalent to RMB 1.587 billion) in 2024.

Moreover, this business has performed outstandingly in overseas markets, contributing a total of USD 182 million in revenue from Europe, the Middle East, and Africa in 2024, accounting for over 80% of the total.

This integration could indeed improve CARDIOFLOW-B's financial performance.

However, the issues to be resolved in this transaction are not limited to this.

In fact, the entity responsible for the cardiac rhythm management business is MicroPort's subsidiary, MicroPort Cardiac Rhythm Management Co., Ltd. (hereinafter referred to as "MicroPort Rhythm"), which was originally planned to "fly solo."

In May 2023, MicroPort Rhythm submitted an IPO application to the Hong Kong Stock Exchange, but there has been no further progress since then.

For the "operator" MicroPort, the deeper reason for integrating the originally planned IPO MicroPort Rhythm into CARDIOFLOW-B may point to the pressure of a bet.

In July 2021, MicroPort introduced Hillhouse Capital and other institutions to MicroPort Rhythm, but it was agreed that if MicroPort Rhythm failed to go public by July 17, 2025, and its market capitalization after listing did not reach USD 1.5 billion or raised less than USD 150 million, then Hillhouse Capital and other institutions would have the right to require MicroPort Rhythm to redeem shares.

As of the end of 2022, the amount of "preferred financial instruments" formed by this redeemable financing reached USD 287 million.

The timing of MicroPort's planning for the integration of MicroPort Rhythm coincides with the expiration of the bet agreement, perhaps to alleviate the impending financial pressure of a "redemption wave."

In fact, this is not the first time CARDIOFLOW-B has taken over related assets from MicroPort.

As early as last August, CARDIOFLOW-B spent around RMB 360 million to acquire real estate from MicroPort—land and related buildings located at 501 Newton Road, Zhangjiang Science City, Pudong New District, Shanghai For CARDIOFLOW-B, which has not yet turned a profit and still requires funding for research and development, spending a huge amount of money to acquire real estate is not an easy task.

The question of whether CARDIOFLOW-B's second acquisition of related assets from MicroPort Medical is worthwhile remains to be answered pending further disclosure of transaction pricing and other information