LONDON (Reuters) - Alliance Boots said on Monday it had agreed to form a 50-50 joint venture with Guangzhou Pharmaceutical Co. to enter the Chinese market.
Alliance Boots AB.L said it would buy a 50 percent interest in GP Corp, China’s third-biggest pharmaceutical wholesaler, for 38 million pounds. GP is currently 90 percent owned by Guangzhou Pharmaceutical Co.
The investment is to target the rapidly growing Chinese pharmaceuticals market, which Alliance Boots expects to become the world’s sixth largest by 2010 from ninth currently.
“The Chinese market has good growth potential and this move demonstrates our belief in the ability of the group to drive growth through developing opportunities in new markets,” Alliance Boots Chief Executive Richard Baker said in a statement.
Alliance Boots is the latest British firm to set up shop in China, seeking to benefit from its booming consumer economy amid forecasts of slowing consumption at home. Tesco (TSCO.L), Britain’s biggest retailer and the world’s fifth largest, on Friday opened its first own-brand Chinese supermarket in Beijing.
“It looks like a sensible acquisition, but, given the neutral effect on the profit and loss, it should be negligible on the valuation of Boots,” Seymour Pierce analyst Richard Ratner wrote in a note.
On completion of the Alliance Boots deal, the venture, which has 9 depots and controls around 3 percent of the Chinese pharmaceutical wholesale market, will operate 29 retail pharmacies, the maximum permitted under the current regulations for a 50-50 foreign joint venture.
Alliance Boots said it would make the investment through a UK subsidiary in which U.S.-listed Beijing Med-Pharm Corp holds 20 percent.
The venture is expected to be completed in the second half of 2007 and will boost Alliance Boots’s wholesale presence to 15 countries.
Shares in Alliance Boots, created from the merger of retailer Boots and drugs wholesaler Alliance Unichem in July, traded slightly lower at 820 pence per share by 10:05 a.m., in line with the DJ Stoxx index of European retailers .SXRP.