Caixin
May 31, 2018 06:02 AM
BUSINESS & TECH

Alibaba Consolidates Health Assets in $1.4 Billion Transfer

Alibaba Health takes over assets that generated more than 20 billion yuan of transactions last year on Tmall. Photo: IC
Alibaba Health takes over assets that generated more than 20 billion yuan of transactions last year on Tmall. Photo: IC

E-commerce giant Alibaba Group Holding agreed to sell the medical devices and health-care products assets of its Tmall marketplace to a Hong Kong-listed health unit for HK$10.6 billion ($1.4 billion) of stock in a bid to develop a flagship arm in the fast-growing business.

The asset transfer from Tmall Pharmacy to Alibaba Health Information Technology in exchange for newly issued shares in the health company will increase Alibaba’s stake in the Hong Kong-listed company to 56% from the current 48%, according to Alibaba.

The deal gives Alibaba Health assets that generated more than 20 billion yuan of transactions involving 3,300 merchants in the last fiscal year. In the two weeks before the transaction’s announcement, Alibaba Health’s shares surged 60%. The stock gained almost 2% Wednesday to close at HK$7.14.

Alibaba Health posted a fourfold increase to 2.4 billion yuan in sales for the fiscal year ended March 31, compared with the previous year. The online health-care service sector may also have benefited from news that regulators are considering easing or lifting restrictions on online sales of prescription drugs.

“Health care is a strategically important area for Alibaba Group with strong growth potential,” said Alibaba Group CEO Daniel Zhang. “This transaction is a logical evolution for the continued development of Alibaba Health into our health-care flagship platform.”

The transaction will raise Alibaba Health’s profile in China’s booming online medicine and health-care products market, Merchants Securities said Wednesday. The brokerage predicted faster growth in the sector as regulators push forward the establishment of an online drug circulation system to better track the flow of medicines. Online sales currently account for only 3% of China’s drug and health-care product sales, compared with 20% of other consumer goods, signaling huge growth potential, Merchants Securities said.

The transaction doesn’t include Tmall Pharmacy’s prescription and over-the-counter drug sales assets, which generated sales of 20.6 billion yuan in the last fiscal year, accounting for 52% of Tmall Pharmacy’s total revenue.

Online sales of prescription drugs still face regulatory uncertainties in China as regulators have hesitated to fully open the market to e-commerce companies in the face of resistance from public hospitals. Caixin reported earlier this month that regulators are studying the possibility of allowing online sales of prescription drugs, signaling the possibility of scrapping or scaling back restrictions.

The transfer of assets is subject to closing conditions, including approval of the deal by Alibaba Health’s independent shareholders as well as the Hong Kong Stock Exchange.

Contact reporter Han Wei (weihan@caixin.com)

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