Alibaba Group said Tuesday it has agreed to sell certain Tmall Pharmacy healthcare categories to Alibaba Health Information Technology Ltd.
The deal, the latest step in implementing Alibaba Group’s promotion of health and happiness as a strategic focus, will see the parent company receive HK$10.6 billion of newly issued shares of Hong Kong-listed Alibaba Health, which became a subsidiary of Alibaba Group in 2015. Alibaba Group, itself, is listed on the New York Stock Exchange.
“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,” said Alibaba Group CEO Daniel Zhang. “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.”
Categories moving over to the Alibaba Health platform from Tmall Pharmacy include medical devices and healthcare products, adult products and medical and healthcare services. Altogether, they represented 3,300 merchants on the platform and RMB20.6 billion (US$3.2 billion) in gross merchandise value in the fiscal year ended March 31, 2018.
“Alibaba Group has been very supportive to the development of Alibaba Health as the group’s flagship platform in the healthcare sector,” said Alibaba Health CEO Leo Shen. “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.”
Alibaba Group said it will benefit from Alibaba Health’s specialized healthcare ecosystem and expertise in managing merchants on Tmall Pharmacy. As well, the new arrangement means Tmall Pharmacy merchants will be able to more closely connect with consumers and other healthcare ecosystem participants, enhancing customer retention and new sales opportunities.
Customer and merchant experience should also be elevated. The integration leverages Alibaba Health’s existing healthcare product sales and services, accelerating expansion in China’s fast-growing healthcare sector. Merchants on Tmall Pharmacy will have a closer connection with consumers and other healthcare ecosystem participants. That should enhance customer retention and new sales opportunities. As well, Alibaba Health’s analytical capabilities will improve customer experience, with frequent engagement, more choices and broader healthcare product offerings.
Upon completion of the transaction, Alibaba Group will see its equity ownership and voting interest in Alibaba Health increase to 56.2% and 67.5%, respectively, from 48.1% and 61.5%.
China’s healthcare sector is expected to grow significantly and rapidly in the coming years to meet rising demand for higher-quality medical and healthcare services. Frost & Sullivan forecasts total healthcare expenditure in China to climb to RMB11.4 trillion in 2026 from RMB4.6 trillion in 2016, at a compound annual growth rate of 9.4%.
The Alibaba Health deal is subject to closing conditions, including approval of the transaction by Alibaba Health’s independent shareholders, as well as the Hong Kong Stock Exchange.