Alibaba Group Holding Ltd (NYSE:BABA) is consolidating its online pharmacy business in a $2.5 billion transaction involving its affiliate listed in Hong Kong and another investor. The step is expected to accelerate Alibaba Group’s ride in the booming Chinese online healthcare business, which will soon include prescription drugs.
The affiliate that will take charge of Alibaba Group Holding Ltd (NYSE:BABA)’s online healthcare business is known as Alibaba Health Information Technology Limited, a business based on Hong Kong. Alibaba Health will issue stock and debt to raise funds to acquire 100% of Alibaba Group’s online pharmacy unit.
According to Alibaba Group’s COO, Daniel Zhang, the deal with Alibaba Health will enable the group to build a solid healthcare ecosystem that is able to take advantage of big data and e-commerce to bolster supply chain.
Taking prescription drugs online
Although Chinese hospitals currently control much of the prescription drug market, there is a push to open prescription drug market to online drugstore operators. In the current arrangement, online pharmacies are only limited to offering over-the-counter drugs, unable to tap the nearly $161 billion prescription medicines market.
China is gearing up to allow online operators such as JD.com Inc (ADR) (NASDAQ:JD), Alibaba Health and Wal-Mart Stores, Inc. (NYSE:WMT) to start offering prescription medicines, which is one of the reasons Alibaba Group is moving to strike a deal ahead of time.
Larger stake in Alibaba Health
The deal to offload online pharmacy operations to Alibaba Health is expected to close in 3Q, although the matter is subject to approval of Alibaba Health shareholders. If the transaction is successful, Alibaba Group Holding Ltd (NYSE:BABA) will be able to increase its stake in Alibaba Health to 53%, up from 38% and making the business a consolidated unit.
Alibaba Group’s competitors such as JD.com, Baidu Inc (ADR) (NASDAQ:BIDU) and Tencent Holdings ADR (OTCMKTS:TCEHY) have also been able to reorganize their online pharmacy operations to take advantage of the booming online healthcare market.