Alliance Boots in link-up with Chinese pharmacy wholesaler

Alliance Boots has become the latest British company to make a move into the rapidly expanding Chinese market with a joint venture with the country's third- largest pharmacy wholesaler.

The drug distribution and retail company has acquired a 50 per cent interest in the state-owned firm Guangzhou Pharmaceuticals Corporation (GP Corp) for £38m. GP Corp is the market leader in its home province of Guangdong, which has a population of 78 million and one of the fastest growing GDP's per capita in China. Across the country, the company has 3 per cent of the market share.

Alliance Boots said the Chinese wholesale and distribution market was currently fragmented and largely regionally based.

GP Corp reported revenues of £425m in 2005 and analysts estimate it turns in profits of around £4.5m a year. China is expected to be the sixth-largest pharmaceuticals market in the world by 2010. It is currently ninth.

Keith Bowman, an equity analyst at Hargreaves Lansdown Stockbrokers, said the move creates some excitement "in what has otherwise been a relatively sedate story".

He said the company, which was formed last July through a £7bn merger of Alliance Unichem and Boots, had so far been focusing on cost savings rather than sales growth.

"Potentially, China is a vast marketplace and the move looks sensible on the surface," he said. "That said, government regulation is still significant, and risks relating to state intervention need to be held in mind.

"The move does provide some longer-term opportunity for growth, although, for now, it may just be seen as a temporary distraction in the group's more significant battle against the supermarkets."

Most of Alliance Boots' retail business is in the UK, where it has been battling against fierce competition from the supermarkets which have been making steady incursions into the healthcare and beauty markets. Since its merger, the company has been expanding internationally, including into Russia and Egypt.

Signalling that yesterday's deal could eventually lead to a greater presence in China, the deputy chairman, Stefano Pessina, said that he expected GP Corp to benefit "from both the rapid expansion of the Chinese healthcare market and further consolidation opportunities as they arise".