The Acquisition Behind Alibaba’s Drug Safety Program Broke The Rules: HK Regulators

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A Hong Kong regulator has pointed the finger at Alibaba for breaching acquisition rules when it purchased a healthcare company two years ago, saying the Chinese e-commerce company bought the firm on “favorable terms” due to a connection with the company’s executives.

Alibaba purchased CITIC 21 CN in 2014 for $170 million USD, which has since been restructured under Alibaba Health Information Technology Ltd.

According to a ruling from the the Takeovers and Mergers Panel of the Hong Kong Securities And Futures Commission posted on Wednesday, Alibaba also purchased another medical technology firm at the time, Hebei Huiyan Medical Technology Co., which was owned by the brother of CITIC 21 CN’s vice chairman.

The regulator has accused Alibaba of purchasing the second company under favorable conditions, meaning the same deal was not made available to other shareholders.

“[The deal] constituted a special deal with favourable conditions which were not extended to all shareholders and was a clear breach of the Takeovers Code,” said the result published by the Takeovers and Mergers Panel of the Hong Kong Securities And Futures Commission.

The acquisition of CITIC 21 CN left many onlookers scratching their heads back in 2014, when the company was operating at a significant loss. One of the primary benefits of the deal for Alibaba was CITIC 21 CN’s large pharmaceutical data base.

In July 2014 Alibaba announced they had integrated the company’s data to their own e-commerce platform, forming the backbone of their “Drug Safety Program”, which was launched to clean their e-commerce platforms of fake drugs.

Last month when the initial ruling was announced Alibaba said that they would contest the outcome.

Alibaba transferred their pharmacy business into Alibaba Health in April last year, consolidating their two biggest health investments. The health arm now oversees the sale of pharmacy products as well as other data-driven healthcare projects.