Alibaba Health to Acquire Tmall's 'Blue Hat' Health Supplement Business for HK$3.8 Billion

VCBeat (WeChat: vcbeat) reported on May 19 that following the strong opening of its annual report, Alibaba Health has made another move. This morning, Alibaba Health (00241.HK) announced that it has formally entered into a share subscription agreement with Alibaba Group, under which Alibaba Group will inject the online health food business operating under the “Blue Hat” certification on the Tmall platform into Alibaba Health.

According to VCBeat, the current asset injection plan has been in preparation for quite some time. As early as April 2016, Alibaba Health issued an announcement stating that it was actively discussing with Alibaba Group the possibility of injecting Alibaba Group’s health food, dietary supplement, and traditional tonic nutrition businesses into Alibaba Health.

On March 14 this year, Alibaba Health issued another announcement stating that it would continue to actively pursue the acquisition of Tmall’s online health supplement business. The signing of this share subscription agreement represents the concrete outcome of discussions held over the past year.

According to the equity subscription agreement disclosed in the announcement, Alibaba Group will provide value amounting toHK$3.8 billionTmall Health’s online business for “Blue Hat” health supplements was injected into AliHealth. Upon completion of the transaction,Alibabathe Group's involvement in Alibaba HealthThe shareholding ratio will increase from approximately 37.9% to approximately 45.8%, and the voting rights will rise from the previous approximately 54.0% to approximately 59.8%.

The transaction consideration is attributable to the high profitability of Tmall’s health supplement business. VCBeat reviewed the announcement and learned that for the fiscal year ended March 31, 2017, there wereMore than 950 merchants sell “Blue Hat” health foods on the Tmall Health platform，Annual active buyers exceeded 11.81 million, Blue Hat Health Food BusinessTransaction volume amounted to approximately RMB 2.772 billion.

“Blue Hat” health supplements have long constituted a significant sales category on Tmall’s pharmaceutical platform, with substantial room for future growth. At the beginning of the year, the “2016 Blue Book on the Development Status of the China Medical Pharmaceutical Materials Association” disclosed that the share of pharmaceutical and health products in e-pharmacy consumption rose from 76.9% to 82.8% in 2016, maintaining steady growth over the past three years.

Alibaba's financial report shows that in fiscal year 2017,The health supplement business generated RMB 62.27 million in commission revenue for the Tmall platform.Once the injection is complete, it will add more revenue to Alibaba Health's pharmaceutical e-commerce sector, with the implication of "nourishing" and strengthening itself being self-evident.

Meanwhile, Alibaba is leaving no stone unturned in this transaction. According to the announcement, upon completion of the deal, Ali Health will assume the business contractual relationships with “Blue Hat” certified health food merchants on the Tmall Healthcare platform. It will provide a series of value-added services—including merchant onboarding, brand marketing, and technical support—and charge commissions accordingly.This means that Alibaba Health will secure agency rights for the entire health supplement category, offering promising revenue prospects.

Industry insiders believe that this move effectively demonstrates Alibaba’s determination to fully support Alibaba Health. “Alibaba will continue to support Alibaba Health, as always, in its role as the flagship platform in the healthcare and medical sector. In the future, we will continue to explore various models of cooperation to help the company achieve its goals.”

In its announcement, Alibaba Health stated, “The Company believes that the acquisition of the Target Business will: (a) further secure the Company’s development as the flagship healthcare platform under Alibaba Group; (b) enable the inclusion of a broader range of e-commerce merchants into the online healthcare community, thereby enriching the ecosystem and forming an organic complement to the Company’s three major business segments—pharmaceutical e-commerce, smart healthcare services, and product traceability platform services; and (c)Achieve more stable and sustainable revenue growth.”

Currently, Alibaba Health’s e-commerce business segment comprises a comprehensive system that includes Alibaba Health Pharmacy, Tmall Pharmaceutical Operations Services, and pharmaceutical O2O services, among whichTmall Medicine, the platform under our managed operations, is Alibaba’s core retail platform for pharmaceuticals and health products, and one of the fastest-growing categories on Tmall.

Furthermore, in accordance with Alibaba Health’s previously announced future strategic layout, Alibaba Health will leverage internet and big data technologies,Building a comprehensive industry ecosystem encompassing medical services, pharmaceutical e-commerce, personal health management, and health insurance“The injection of ‘Blue Hat’ assets has moved Alibaba Health one step closer to building an industry-wide ecosystem.”

Alibaba Group Announces Integration of Online Pharmaceutical Business into Alibaba Health

On April 15, 2015, Alibaba Group announced that it had reached a definitive agreement with Alibaba Health Information Technology Limited, which is listed in Hong Kong. Under the agreement, Alibaba Group will transfer the operating rights of Tmall’s online pharmaceutical business to Alibaba Health in exchange for newly issued shares and convertible bonds of Alibaba Health.

Alibaba Health Announces It Will Not Renew Its Transaction Agreement with Tmall’s Online Pharmaceutical Business

On March 3, 2016, Alibaba Health issued an announcement stating that the acquisition of Tmall’s online pharmaceutical business could not be completed by the final deadline, as the B2C third-party platform pilot license held by Hebei Huiyan—acquired concurrently in the transaction—had not received a renewal response from the China Food and Drug Administration (CFDA). Given the uncertainty surrounding the current status of the B2C third-party platform pilot license, Alibaba Health decided to discontinue the transaction with Tmall’s online pharmaceutical business to safeguard investors’ interests.

Alibaba Health Signs Agency Operation Service Agreement with Tmall

On April 1, 2016, Alibaba Health issued an announcement stating that, effective immediately, it had entered into a three-year service agreement with Tmall, under the Alibaba Group, to independently operate Tmall’s e-commerce business for pharmaceuticals and health products, and to charge service fees. According to the service agreement disclosed in the announcement, Alibaba Health would provide Tmall with outsourcing and value-added services—including merchant acquisition, customer service, and operations for the pharmaceuticals and health products e-commerce segment—while Tmall would pay service fees to Alibaba Health.

"China Pharmaceutical O2O Pioneer Alliance" Established

On May 25, 2016, Alibaba Health spearheaded the formation of the “China Pharmaceutical O2O Pioneer Alliance” in collaboration with 65 chain pharmacies, including Baijiahui Suhe, Deshengtang, Baicaotang, and Kangaiduo. The alliance was established to build an O2O ecosystem and a member management platform; advance the separation of prescribing from dispensing and explore constructive partnerships with hospitals; provide training and educational services related to pharmaceutical retail and the internet for its members; conduct industry research, analyze market trends, develop information resources, and establish information and member networks; and leverage the collective strengths of the pharmaceutical industry through the alliance platform to formulate industry standards and codes of conduct, thereby continuously improving industry quality and service levels.

Tmall Medicine Halts Online Drug Transactions

On August 1, 2016, in accordance with the prior policy requirements of the China Food and Drug Administration (hereinafter referred to as the “CFDA”) and the Hebei Provincial Food and Drug Administration, the pilot program for online retail of pharmaceuticals via third-party internet platforms expired. On that day, the Tmall Health platform suspended its online transaction functionality for over-the-counter (OTC) drugs.

Ali Health Acquires Guangzhou 5000 Years

On August 17, 2016, Alibaba Health issued an announcement stating that it had completed the acquisition of 100% equity interest in Guangzhou Wunianqian Pharmaceutical Chain Co., Ltd. on August 16, making Guangzhou Wunianqian Pharmaceutical a wholly-owned subsidiary of Alibaba Health.

Alibaba Health’s Entrusted Operation Agreement for Tmall Pharmaceutical Services Approved by Shareholders’ Meeting

On September 12, 2016, Alibaba Health held an extraordinary general meeting of shareholders in Hong Kong to vote on the outsourcing and value-added services agreement signed between Alibaba Health and Tmall. The proposal was approved by 100% of the attending shareholders. Effective immediately, Alibaba Health will provide comprehensive outsourcing and value-added services to Tmall Pharmacy, assisting Tmall in developing its pharmaceutical e-commerce business in exchange for fees.

Alibaba Health Releases Fiscal Year 2017 Earnings Report: Pharmaceutical E-Commerce Becomes a Key Revenue Source

On May 17, 2017, Alibaba Health released its financial results announcement for fiscal year 2017. The total revenue from its pharmaceutical e-commerce business line reached RMB 379 million, with pharmaceutical e-commerce operations—including Alibaba Health Pharmacy, Tmall’s pharmaceutical consignment operation services, and online-to-offline (O2O) pharmaceutical services—becoming a significant source of revenue for Alibaba Health.

The “China Pharmaceutical O2O Pioneer Alliance” has partnered with more than 200 chain pharmacy companies, covering over 20,000 pharmacy stores in more than 100 cities across China. Within just over 10 months of its establishment, the number of partner chain pharmacies tripled, and the number of partner pharmacy stores doubled.

Alibaba Health Initiates Acquisition of Tmall’s “Blue Hat” Health Food Business

On May 19, 2017, Alibaba Health issued an announcement stating that it had formally entered into a share subscription agreement with Alibaba Group, whereby Alibaba Group would inject the online business of “Blue Hat” health foods on the Tmall platform into Alibaba Health.