Chinese e-commerce behemoth Alibaba Group has announced that it has agreed to sell “certain Tmall pharmacy healthcare categories” to its Hong Kong-based digital healthcare subsidiary Alibaba Health Information Technology Ltd. Under the deal, parent company Alibaba Group will receive HK$10.6 billion (over US$1.35 billion) of newly issued shares of Alibaba Health, which is listed on the Hong Kong Stock Exchange and became a subsidiary of Alibaba Group in 2015. The Alibaba Group will also see its equity ownership and voting interest in Alibaba Health increase to 56.2 percent and 67.5 percent, respectively, from 48.1 percent and 61.5 percent on the transaction’s successful completion.
In a press statement about the sale, Alibaba Group CEO Daniel Zhang said, “Healthcare is a strategically important area for Alibaba Group with strong growth potential. This transaction is a logical evolution for the continued development of Alibaba Health into our healthcare flagship platform...Alibaba Health’s knowledge and network, in combination with Alibaba Group’s consumer insights and technology, will enable us to create the best healthcare ecosystem in China.” Leo Shen, CEO of Alibaba Health, added, “Alibaba Group has been very supportive to the development of Alibaba Health as the group’s flagship platform in the healthcare sector...The transaction strengthens Alibaba Health’s market leadership and recognizes our contribution to the healthcare industry in China. It will allow us to expand our business by adding more complementary categories and enabling us to have deeper engagement with more participants.”
The Alibaba Group previously announced a similar deal in April 2015 when it said it would transfer its e-pharmacy operations from Tmall to Alibaba Health and in exchange for new shares and convertible bonds. However, that deal fell through, with Alibaba Health revealing the proposed acquisition had lapsed on March 31, 2016, due to regulatory concerns. The new deal between the two companies is also subject to closing conditions, including approval of the transaction by Alibaba Health’s independent shareholders as well as the Hong Kong Stock Exchange.
According to the press statement from the Alibaba Group, categories moving from Tmall pharmacy to Alibaba Health include medical devices and healthcare products, adult products, and medical and healthcare services. Together, these verticals represent 3,300 merchants on Tmall and RMB20.6 billion (over US$3.2 billion) in gross merchandise value in the fiscal year ended March 31, 2018. Through the new arrangement, these merchants will be able to use Alibaba Health’s industry expertise to build stronger connections with consumers, improve customer retention, and explore new growth opportunities.
This consolidation is Alibaba’s latest step in its push into China’s heavily-state-dominated healthcare sector. The company has vowed to use the latest technology trends like big data and cloud computing to revolutionise what it sees as an “outdated” sector, but which nevertheless holds big potential for the future. According to consultancy McKinsey & Co., Chinese healthcare spending is set to hit US$1 trillion by 2020, up from US$357 billion in 2011, and Alibaba is gunning hard to establish its presence in this lucrative market. The Alibaba Group has also been steadily reigning in its vast and sprawling empire, including recent consolidation of logistics arm Cainiao and video service Youku as well as Southeast Asian e-commerce platform Lazada.
The Alibaba Health deal is the latest step as the world’s largest retailer looks to further strengthen its industry presence across a variety of sectors.