Year: 2023

Walgreens Boots Alliance has sold its remaining stake in home infusion services provider Option Care Health for proceeds of about $330 million, the drugstore giant said Thursday night.

“The company intends to use the proceeds primarily for debt pay down, continued support of WBA’s strategic priorities and transformation to a consumer-centric healthcare company,” Walgreens said in a statement. “The transaction is another decisive action WBA is taking to unlock value and further simplify the company’s portfolio.”

To be sure, Walgreens has been reducing its stake in other businesses in the last two years to raise money for other priorities such as its multi-billion dollar bet on doctor-staffed primary care clinics attached to drugstores. Less than a month ago, Walgreens sold shares of AmerisourceBergen, a large drug distributor, for proceeds of $694 million. That sale of AmerisourceBergen stock followed another sale of the distributor’s stock last December for proceeds of $1 billion, reducing its stake in the company to less than 20%.

Walgreens has been spending billions of dollars to expand its primary care business and has used a mix of equity and debt to do so. Most notably, Walgreens has invested in VillageMD, which last year announced plans to buy Summit Health for $8.9 billion to expand doctor-staffed clinics across the country. The transaction includes investments from Walgreens, which already owns about half of VillageMD, and Cigna’s health services business Evernorth.

The combination comes as Walgreens and rivals CVS Health, Walmart and Amazon push deeper into providing medical care in drugstores and other retail settings.

Amazon earlier this year closed on its $3.9 billion acquisition of One Medical, which operates more than 220 primary care offices in more than 28 U.S. markets.

Meanwhile, CVS Health, which owns the health insurer Aetna, has been doing some wheeling and dealing of its own. CVS bought the home care company Signify Health for $8 billion and last month completed its acquistion of Oak Street Health for $10.6 billion in cash, adding a large network of doctor-staffed clinics primarily used by seniors.

Other health insurers, like UnitedHealth Group, have long been gobbling up doctor practices and other primary care operations including urgent care and surgery centers via its Optum health services business. And Walmart has opened several new doctor-staffed “Walmart Health” centers in several states and is doubling the number of such facilities by the end of next year to around 80.

Forbes is out this week with our 20^th Global 2000 list of the world’s top publicly traded companies. One of the most striking trends in the past two decades is gains by China. Including Hong Kong, the number of Chinese companies totalled 346 this year, compared with only 43 two decades ago. During that time, China’s economy has been one of the world’s fastest growing and now ranks as the world’s second largest after the United States. China’s presence on the 2023 Forbes Global 2000 list is second only to the U.S., which has 611 members.

A big share of the increase in China’s total on the Forbes Global 2000 list is by state-owned enterprises, or SOEs: companies ultimately controlled by the Chinese government through ownership stakes. Long beyond their Mao Zedong era skill set, many are publicly traded with sprawling global operations. Underscoring their clout, all three Chinese members in the top five of the new Forbes Global 2000 list — the Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China — are considered SOEs.

Compared with 20 years ago, non-state-owned private sector companies such as e-commerce heavyweight Alibaba, Apple supplier Luxshare Precision, and Warren Buffett-backed EV maker BYD have also made striking gains on the list and dot this year’s ranking. Less highlighted, however, is government support for private sector businesses.

What are some of the more nuanced ways that China’s government supports private-sector companies? What role do SOEs in China’s economy play today, and to what extent are Chinese businesses developng new technologies likely to get government support? How can the U.S. respond?

I exchanged on those questions this week by Zoom with Keyu Jin, author of the new book, “The New China Playbook: Beyond Socialism and Capitalism.” Jin, 40, holds a Ph.D. from Harvard and is an associate professor at the London School of Economics. She splits her time between London and Beijing, and is a member of the board of Richemont. She spoke from London. Edited interview excerpts follow.

Flannery: What’s the role of SOEs in China’s economy today and what accounts for their staying power in changing times?

Jin: SOEs are part of “Team China for the Chinese government. They play a very important role in strategic sectors. They undertake large projects on behalf of the government, including infrastructure – such as when China wants to bid for the Olympics, build industrial parks or wants to tackle a new industry. The SOEs are seen as reliable companies for undertaking large projects or carrying out central government missions.

They are run as modern corporations. We have to see SOEs as having evolved substantially over the last few decades, and having had their productivities converge to a large extent with the private enterprises. But their objective is not solely to maximize profits as a private firm would — they also have obligations. Some are monopolies in strategic sectors.

Flannery: How important have mergers and acquisitions been over the years in their big growth?

Jin: Supremely important. This is part of the SOE reforms. Even in the last few years, there’s been consolidation of SOEs to avoid a “tournament-style” competition among the SOEs. There are fewer SOEs, but there’s been a concentration of power and state assets. Again, that’s in strategic industries, not in manufacturing and services.

Flannery: You mention in the book that state-private sector collaboration is more common than recognized. How important is collaboration between private sector companies and SOEs?

Jin: They’re hugely important. In fact, this is part of the unique model of the Chinese political economy system. In the book, I emphasize the “mayor economy” — local officials play a role in supporting the private sector, but local officials also control the local SOEs. They use SOEs as platforms to borrow in order to undertake large projects, and collaborations with the private sector. SOEs are often minority shareholders of private companies. In fact, an overwhelming number of private

companies have equity stakeholders that are SOEs. They can help private companies overcome institutional barriers, help arrange bank loans, help them get licenses and contracts or overcome red tape. Many private enterprises often seek SOE participation.

But the picture is complex. In some cases, having a state partner or minority stakeholder is troublesome, with inefficient decision-making or interventions. But it’s the network connections with these SOEs that are beneficial to the private firms.

And if we look at the data, the ones that have a closer link with the central (government) SOEs are actually the more productive ones. That overturns a common assumption that the private-public linkages are often corrupt and corrosive. In fact, the most productive companies are the ones that have state backing, or maybe they have become more productive because of minority state backing.

Flannery: How has that worked with EV makers?

Jin: For instance, NIO is a very successful example where the Hefei government was a stakeholder and cashed out shortly after. It’s necessarily not the intention of the local governments to be a stakeholder for the long run. Often, there’s a financial gain, but more often than not it’s during the starting point where they can help the private entrepreneurs succeed. Once they’ve made a solid return on their investment, they cash out. They’re not long-term investors.

So, this is very different from subsidies. The direct financial support from the local governments is also very limited, and even more now as local coffers are no longer as full. Instead, local governments help to lever up social capital to help these promising companies raise funding without having a very involved financial interest in the company. This is one way in which local governments help out local entrepreneurs, but equally important is their help in creating an industrial cluster and coordinate a supply chain.

SOEs, however, are different, and unlike local officials can potentially be long-term stakeholders. The two have different interests — SOEs are more economically financially driven, whereas local governments care about the kind of jobs, number of jobs, talent attracted. They don’t have a purely financial objective.

Flannery: To what extent you see this kind of government-private collaboration helping China in its next chapter of a technology development, such as with AI?

Jin: We talk about public-private partnerships — PPP — all the time around the world. It’s often very inefficient or very limited in scope. This works much better in China. It’s not without its inefficiencies and waste but is a model where the public aspect actually does make a huge contribution. It will be critical for China’s AI or high-tech ambition, but we have to be nuanced about what kind of (government) role we’re talking about. For instance, the fact that the Chinese government has installed four million EV chargers all around the country is massively helpful, especially you compare it to the U.S. number, which is 140,000. But is the state good at picking winners? No, it has not been.

Innovation ultimately is an ecosystem that connects industries, labs and universities. In fact, China is taking inspiration from the Japanese and the American models where the state coordination of that ecosystem has played a very critical role. We cannot forget how much the U.S. government was behind the Internet, the personal computer or the jet. Tesla and SpaceX also have (received support) from the U.S. government. So I think it will play a critical role in China, especially in the sectors which require large amounts of funding over long and uncertain investment cycles.

But in many other scenarios, Chinese private companies don’t need the state’s help, such as consumer-related innovation. In fact, the less involvement there, the better are the results. But if you talk about the state role in areas that involve huge amounts of funding and patient capital, such as in quantum, space and even certain aspects of AI, it will be hugely important.

Flannery: How does the evolving China playbook that you describe in your book differ from the U.S., and how can the U.S. try to pursue a level playing field vis-a-vis China?

Jin: China needs more market and less state; the U.S. needs the opposite — a bit more state and stronger state capacity.

Ultimately, though, if we really look at many of these key cutting-edge fields, there’s a huge amount of what I call competitive collaboration between the U.S. and China. If you look at the renewables sector, for instance, Tesla opted for a Chinese battery maker, which is building factories in Germany. Japanese and American companies are investing with Chinese EV companies so they can bring the technology back home. This actually benefits both China and the U.S. but ultimately the world.

I don’t think we don’t want to kill that competition by suppressing Chinese competition to the U.S. — it’s ultimately a good thing, because the U.S. has actually seen higher concentration levels and more monopolies in the last couple of decades than more competition. It’s ferocious domestic competition in the vast China market with a lot of talent that is making Chinese companies so innovative. They have any choice but to compete.

Flannery: So how should U.S. seek a level playing field, apart from harnessing that fair competition?

Jin: Rather than trying to place all the blame on China, use competitiveness to make yourself stronger. Chinese competition spurs the U.S. forward because you have a competitor in your rear-view mirror. It’s the same analogy between Japan and the U.S. during Japan’s technological competition heyday in the 1980s. Japan pushed the U.S. forward.

For China, it should open up more to American and European businesses and give them a level playing field in the Chinese market. They are ready for the competition now—-and like the U.S., China needs more international competition, not less.

See related posts:

Forbes Global 2000: China Ranks Thin As Real Estate Woes Persist

U.S. Busness Interest In China Is Slowly Recoverying

Elon Musk Visit To Beijing Highlights Business Role In U.S.-China Ties

Businesses Could Face Pressure To Choose Sides In U.S.-China Competition

@rflannerychina

Even with last year’s downturn, the U.S. legal cannabis market, which comprises both medical and adult-use, is poised to reach $45 billion in sales in 2027.

This bullish projection is the latest made by top cannabis researcher BDSA, which just released its key market forecast update.

In addition to long-term projections, BDSA estimates that the legal U.S. market is expected to grow 12% by the end of 2023, reaching $29.6 billion. The total global legal cannabis industry is predicted to reach $36.7 billion in 2023, with 80% of sales coming from the U.S. markets.

A big reason for this surge, despite recent setbacks, is the booming cannabis markets in states such as Missouri, New Jersey and New York. And, although mature Western markets such as Colorado and California have experienced sales stagnation or decline due to price compression, said Roy Bingham, co-founder and CEO of BDSA, “They will continue to account for a substantial portion of legal sales through 2027.”

Following are some highlights of BDSA’s current forecast:

*Missouri legal cannabis sales are estimated to reach $1.4 billion in 2023, driven by a strong start to adult-use sales;

*New York legal cannabis sales are projected to total $631 million by the end of 2023 and by 2027, that figure is estimated to reach $2.5 billion;

*Despite legal challenges, adult-use sales are expected to begin in Florida in 2025 and reach $4.3 billion by 2027; and,

*Pennsylvania is expected to see a slight decline in cannabis spending in 2023, with total legal sales forecast to be just over $1 billion this year.

When asked about the latter state’s cannabis spending dip, Bingham cited several reasons, including the obvious one: Residents are travelling to neighbor states New York and New Jersey, both of which have operational adult-use markets as opposed to Pennsylvania, which only has medical, for their purchases.

But that’s not the only explanation, noted Bingham.

“Price compression is the biggest driver of dollar sales declines in the state,” he said. “Equivalent average retail prices in Pennsylvania declined -25% between April 2022 and April 2023. Unit sales grew steadily in Pennsylvania over that period, but this increase in unit sales was not enough to offset the price compression in the market.”

Headquartered in Louisville, Colorado, BDSA launched in 2015.