Walgreens Boots Alliance announced Wednesday (Dec. 6) it reached an agreement with China National Accord Medicines to invest in its unit, Sinopharm Holding GuoDa Drugstores Co. The unit operates retail pharmacies around China and also franchises the drug stores.
In a press release, Walgreens said it is investing around $416 million for a 40 percent minority stake in GuoDa. The transaction is subject to a regulatory review and approval, as well as other closing conditions.
“We are very pleased to become a strategic investor in GuoDa. It is China’s leading pharmacy chain and we believe that we can positively contribute to its continued successful development with our global pharmacy expertise," said Stefano Pessina, executive vice chairman and CEO of Walgreens Boots Alliance. "We have had a presence in China for around 10 years, initially through Alliance Boots, and we are excited about the opportunity to further invest in the country’s fast-growing retail pharmacy sector."
The Walgreens investment comes right after CVS announced it would purchase Aetna in a $69 billion deal. The deal, which is the largest transaction in 2017 so far, comes amid increased pressure on insurers to lower the cost of medical services, as well as on retailers, which face increased pressure from new market entrances, such as Amazon.com.
By combining, the two will have more scale so they can bargain for better prices on prescription drugs. Passing on those cheaper prices to consumers could also stunt Amazon’s growth in the market. What’s more, an expanded retail footprint would be a cheap way to have more distribution centers and in-store clinics. The deal between the two is far from a sure bet, given that it could raise regulatory concerns. Analysts said the deal could spur more mergers and acquisitions in the market.