Mainboard-listed Eu Yan Sang International, the retailer of Traditional Chinese Medicine (TCM) products and operator of integrative healthcare clinics, has acquired 14.99% of Healthzone Limited, an ASX-listed distributor, franchise retailer and brand owner of health, beauty and natural health products in Australia and China.

Eu Yan Sang has acquired from the open market 7.3 million Healthzone shares at A$0.30 each or A$2.2 million ($2.7 million) in total. Eu Yan Sang further subscribed for a private placement of 4.6 million shares at A$0.30 per share or A$1.4 million. The total investment cost of A$3.6 million will be funded by internal cash resources.

The private placement includes 4 million warrants exercisable at A$0.38 per share, or A$1.5 million. The warrants can be exercised within five years when the Healthzone share price exceeds A$0.38. Should these warrants be exercised, Eu Yan Sang’s stake in Healthzone based on the current total number of issued shares, will be 19.99%.

Eu Yan Sang will also be entitled to a board seat in Healthzone.

Eu Yan Sang says the investment will allow it to ride on Healthzone’s franchise chain of 127 retail stores and distribution network in Australia. As Eu Yan Sang’s existing distribution channels in Australia are largely focused in the Chinese communities in the bigger cities, with the acquisition, Eu Yan Sang says it will be able to leverage Healthzone’s existing network to reach the mainstream health product market in Australia.

On the other hand, Healthzone, which distributes more than 4,500 products, can tap its two manufacturing facilities and retail network of 162 stores, says Eu Yan Sang.

Healthzone’s revenue grew 63% from A$63.7 million in FY2008 (year ended 30 June 2008) to A$104 million in FY2009 (year ended 30 June 2009). Net profit after tax also grew 23% from A$2.4 million to A$3.0 million over the same period. For the HY2010 (ended 31 December 2009) Healthzone recorded revenue of A$56.8 million and net profit after tax of A$2 million.