Alibaba to shift Tmall online-pharmacy to health-care arm in a $2.51 billion deal

Wednesday, April 15, 2015

Alibaba Group Holding Ltd. will shift its Tmall online-pharmacy business to its publicly traded health-care arm in a deal valued at $2.51 billion, as it ramps its focus in that sector.

The Chinese e-commerce giant will transfer the pharmacy business on its Tmall marketplace platform to Hong Kong-traded Alibaba Health Information Technology Ltd. in exchange for shares and convertible debt that would bring its stake in Alibaba Health to nearly 55% when fully converted.

Alibaba Health said in a filing with the Hong Kong Stock Exchange that it would pay 19.45 billion Hong Kong dollars worth of shares and debt and that Alibaba Group would treat it as a consolidated subsidiary following the deal.

Alibaba Group said it expects to complete the deal in the third quarter of this year. Currently it has a 38% stake in Alibaba Health. The deal will be considered a reverse takeover under Hong Kong’s rules, the Hong Kong-traded arm said.

The ramp-up is part of Hangzhou-based Alibaba’s effort to take a leading role in the medical industry as China rethinks its health-care system. Alibaba said the deal would position it to sell prescription pharmaceuticals should China’s reforms allow retailers to move in that direction.

Currently shops on Alibaba’s Tmall platform sells over-the-counter medicine, contact lenses, medical devices and other that have a combined gross merchandise value of about 4.74 billion yuan ($763 million) as of March 31, the company said. Gross merchandise volume is a metric Alibaba calculates to represent the amount of business that takes place on its shopping platforms.

Alibaba Health said it would issue shares to its parent company at a price of HK$5.28, a more than 20% discount from the HK$6.68 price where shares traded before being halted in Hong Kong on March 20, pending news. The debt has a conversion price of HK$5.808 per share.

Alibaba Health in the filing said it arrived at the prices in negotiations with its parent by looking at trading 30 days before the halt, and considered the fact that Alibaba Group already controls all of the businesses.

Trading in Alibaba Health’s shares will resume on Wednesday, the company said.

The Hong Kong-traded company said the business it is acquiring posted a profit of 70.9 million yuan ($11.4 million) on revenue of 102.6 million yuan for the year ended March 31.

Alibaba Group’s Tmall is an online platform that connects mostly larger retailers and other businesses with Chinese consumers.

 

wsj.com