In a move that will further expand its footprint in China, Alliance Boots has agreed to pay approximately £56 million ($91 million) for a 12% stake in Shanghai-listed Nanjing Pharmaceutical. The two firms will also form a strategic alliance.
As a result of the investment, the UK pharmaceutical, healthcare and beauty product retailer will become the second-biggest shareholder in Nanjing Pharma, which is the fifth-largest wholesaler of pharmaceutical products in China. The UK company will get a seat on the board, as well as a role in the operational management.
“The cooperation with Alliance Boots is of great significance in the context of the slowing global economy and China’s medical and healthcare reforms, Nanjing Pharma’s chairman, Zhou Yaoping, said in a joint press release issued yesterday. “By introducing Alliance Boots advanced supply chain management technology and experience, Nanjing Pharmaceutical will be able to improve its management practices, achieve greater performance, and help China’s medical industry reach global standards.”
“We are delighted to be partnering with such an established player in the Chinese pharmaceutical market and believe there is huge potential in working together to create a great healthcare distribution network,” added Stefano Pessina, the executive chairman of Alliance Boots.
The acquisition, which was first announced in July last year, is subject to various regulatory approvals. It will be made through a private placement of new Nanjing Pharma shares to Alliance Boots.
According to a source, Nanjing Pharma will also sell a similarly sized stake to state-owned holding company Sasac Nanjing, resulting in an injection of about $180 million of fresh capital into the company.
This is the UK company’s second foray into China after it formed a 50-50 joint venture with Guangzhou Pharmaceuticals Corp in 2008. This investment in Nanjing Pharma will be complementary to that JV, as the two firms operate in different geographies. Guangzhou Pharma operates primarily in the south of China, but still ranks as the sixth largest pharmaceutical player in China. Nanjing Pharma, operates distribution centres in 12 cities across eight provinces and one autonomous region and has a particularly strong market position in its home province of Jiangsu — the second largest province in China by GDP and the fourth largest in terms of pharmaceutical sales. The company had sales of around Rmb20 billion ($3.2 billion) in 2011 and has a current market cap of approximately $683 million.
According to Pessina, the latest investment further strengthens Alliance Boots’s commitment to China and its willingness to play an active role in the evolution of the market in partnership with the authorities and key players.
The expansion in China comes just over a month after Pessina and private equity firm Kohlberg Kravis Roberts (KKR) completed the sale of a 45% stake in Alliance Boots to US-based Walgreens in return for $4 billion in cash and 83.4 million Walgreens shares. The sale is part of a strategic partnership that aims to create “the first global pharmacy-led, health and wellbeing enterprise”, the two companies said at the time.
Walgreens, which is the largest drugstore chain in the US, has the option to buy the remaining 55% of Alliance Boots in about three years, at a price that values the UK business at about £10 billion. However, Pessina is not letting go of the company. As a result of this first deal, Alliance Santé Participations, a company that is owned by a Pessina family trust and of which Pessina is a director, became the biggest shareholder of Walgreens and said it intends to keep that position for the long term.
The Nanjing Pharma acquisition fits well into those plans too, Pessina said. “China has the third largest pharmaceutical market in the world and is growing rapidly,” he noted. “In order to create a global enterprise, it is essential we build a strong presence in such an important and exciting country.”
Nanjing Pharma has been suspended from trading in Shanghai since Tuesday last week, supposedly in connection with this announcement, but the company has had a strong run before that with the share price up 60% year-to-date. It did have a tougher time at the end of last year, however, and the share price is currently pretty much on par with where it was a year ago.
