Here's Why Walgreens Might Be Buying A 40% Stake In China's Leading Pharmacy Chain

Shortly after its big ticket deal with Rite Aid, it seems Walgreens is gearing up for further expansion, this time in China. The company which happens to be America's largest retail pharmacy chain has recently announced its decision to further expand its global retail pharmacy business by buying a 40% stake in Sinopharm Holding Guoda Drugstores, one of the leading pharmacy chains in China, under the state-owned China National Pharmaceutical Group Corporation (Sinopharm). Sinopharm Guoda operates and franchises retail pharmacies in China. This acquisition, estimated to be valued at around $416 million, is expected to significantly increase Walgreens' exposure to the emerging markets. We have an $82 price estimate for Walgreens which is around 14% higher than its current market price.

Possible Reasons For The Deal

  • Gearing Up To Provide Stiff Competition

One cannot help but wonder whether this is Walgreens' reply to the recent announcement by its rival, CVS, to acquire Aetna, the third-largest health insurer in the U.S. for a massive sum of $69 billion. CVS has still not made its ventures into China, however, Walgreens does have a presence in the country for over a decade through Alliance Boots. The current agreement will help in the expansion of its footprints in the region.

  • China's Pharmaceutical Market Has The Potential For Growth

Like all other industries, China's pharmaceutical market is also witnessing significantly healthy growth. The country currently boasts of being the second largest pharmaceutical market in the world. With some recent changes in regulations, the approvals of medicines and medical devices have become even easier in China further facilitating business in the country.

  • Why Gouda?

Launched in 2004, Gouda operates one of the largest pharmacy chains in China. Its chain comprises of 3,500 retail pharmacies across 70 cities and its employee base stands at 20,000.

We expect that Walgreens retail pharmacy revenues from the international segment might receive a significant boost from this investment.

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1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Walgreens

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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