Alibaba and PE firm set to take control of info provider in HK

E-commerce giant Alibaba Group Holding Ltd and private equity firm Yunfeng Capital bought a majority stake in Hong Kong-listed information provider CITIC 21CN Co Ltd for HK$1.324 billion ($171 million), according to a statement filed with the Hong Kong Stock Exchange late Thursday.

Alibaba and Yunfeng - a firm set up by Alibaba chairman Jack Ma - will hold 38.1 percent and 16.2 percent stakes in the company, respectively, becoming the largest shareholder of CITIC 21CN with a combined 54.3 percent.

Alibaba said in an e-mailed statement that the deal is the foundation for a strategic partnership to jointly drive development of a pharmaceutical information platform, Bloomberg News reported.

CITIC 21CN, a unit of the Citic Group, which mainly provides telecommunications and information value-added services, said that it plans to further develop and expand its domestic drug data platform as well as a data standard for medical and healthcare products, based on Alibaba's expertise in cloud computing, data processing and e-business platforms.

It added that the deal will help to bring in financial flexibility, extensive experience and Alibaba's wide business network to the company.

CITIC 21CN's stock price soared after the transaction. The company's shares closed at HK$3.92 on Thursday, up from HK$0.83 on Jan 15, the last day they had traded.

A total of 4.4 billion shares will be issued to Alibaba and Yunfeng at HK$0.3.

After the transaction, the current five executive directors of CITIC 21CN will leave the company and be replaced by five new managers to be appointed by Alibaba.

Alibaba already has a mature pharmaceutical business operating in Tmall, its vertical e-commerce platform, with 81 major drug companies present in the platform.

Eliza Liu, an economist at CCB International Securities in Hong Kong, said that the transaction is positive for the drug-data industry, a sector in which companies not only sell drugs online to consumers, but also collect personal data and medical history from consumers using technology such as big data.

The HK$1.324 billion investment will be used to fund future expansion and M&A opportunities, CITIC 21CN added.

Liu said that the next step for CITIC 21CN will likely be to acquire a health insurance company.

"It's a typical scenario in developed countries. A group owns a drug-data platform business and also runs a health insurance company. In this way, they can sell health plans to targeted consumers," she said.

Alibaba was said to be seeking a listing in Hong Kong last year, but is thought to have abandoned those plans because Hong Kong listing rules would not allow it to issue dual-class shares, which give top managers more voting power than regular shareholders.

Industry insiders said that Alibaba could use CITIC 21CN as a shell company for a backdoor listing in Hong Kong.

David Webb, a stock analyst in Hong Kong said that Alibaba would probably not get listed using this method.

"The total valuation of Alibaba is about HK$1 trillion. There's no company in Hong Kong that's big enough for Alibaba to conduct a backdoor listing," Webb said.

Ma launched Yunfeng in 2010. The firm mainly focuses on industries such as technology, media and telecom, consumer products and healthcare.