Alibaba to merge Pharmacy Business into HK-Listed Affiliate

Chinese e-commerce firm Alibaba Group Holding will merge the operations of its online pharmacy business into a Hong Kong-listed affiliate in $2.5 billion deal.

Shares in the affiliate, Alibaba Health Information Technology Limited, nearly doubled early on Wednesday after the announcement. The shares rose to HK$12.6 at 10.30 am after it resumed trading on Wednesday. The shares had been suspended from trading since March 23.

Under the deal, Alibaba has agreed to acquire Beijing Chuanyun Logistics Investment, which is 90.44% held by Ali JK Investment, a wholly owned subsidiary of Alibaba Holding and 9.56% by Mr. Chen Wenxin.

The purchase will be satisfied by issuing of 2.96 billion Alibaba Health shares to Ali JK Investment and 313.03 million shares to Chen at a price of HK$5.28. The deal is expected to be completed in the third quarter this year.

Alibaba Group chief operating officer Daniel Zhang said, "We expect that this integration will enable Alibaba Group to build a healthcare ecosystem that can utilize e-commerce, big data and other technologies to improve the healthcare supply chain".

Currently, online pharmacies are limited to sell over-the-counter medicines and healthcare products, such as cough remedies and vitamin tablets. However, China will open the over 1 trillion yuan ($161 billion) prescription drug market to online pharmacy operators like Alibaba Health, JD. com and Wal-Mart Stores Inc.

Beijing hopes to improve retail drug sales at pharmacy chains and online. It also wants to fight some sales away from hospitals, which currently control around three-quarters of drug sales.

According to Alibaba, there were currently 186 online-licensed pharmacies on its Tmall online marketplace. Gross merchandise value (GMV) of those businesses was approximately 4.74 billion yuan for the financial year ended March 31, 2015. The customers will be able to access online pharmacies through Tmall after the consolidation.