Australia’s consumer watchdog has raised serious concerns about a healthcare merger deal that would affect millions of pharmacy customers.
On Thursday morning, the Australian Competition and Consumer Commission flagged a number of “concerns” it has about ASX-listed Sigma Healthcare’s proposed $8.8 billion merger with Chemist Warehouse Group, the largest pharmaceutical retailer of Australia with around 600 stores throughout the country.
“This is a major structural change for the pharmaceutical sector, involving the merger of the largest pharmacy chain by revenue with a key wholesaler to thousands of independent pharmacies who in turn compete against Chemist Warehouse,” said ACCC Commissioner, Stephen Ridgeway.
‘We have identified a number of preliminary competition issues, including at retail level and as a result of the proposed integration of the merged company at wholesale and retail level.
“We want to hear from interested parties, including rival pharmacies, as we continue this review.”
On Thursday morning, the Australian Competition and Consumer Commission flagged a number of “concerns” it has about Sigma Healthcare’s proposed $8.8 billion merger with Chemist Warehouse Group (file image)
Sigma is a prescription drug wholesaler and distributor with a market capitalization of nearly $2 billion.
Under the transaction, Sigma would acquire all shares in Chemist Warehouse in exchange for Sigma shares and cash consideration of $700 million, the ACCC said.
Upon completion of the proposed merger, Chemist Warehouse shareholders will own 85.75 per cent of the merged ASX-listed entity, while Sigma shareholders will own 14.25 per cent.
“The transaction would create a combined company that will be vertically integrated at multiple levels of the pharmaceutical supply chain,” Mr Ridgeway said.
“This new business model for the pharmaceutical sector could raise barriers to the expansion or entry of rivals, which could reduce competition.”
‘The ACCC has heard many concerns about the impact Chemist Warehouse has had on the pharmaceutical sector.
‘However, the ACCC focuses solely on the impacts of the acquisition on competition, rather than the pros or cons of different business models.
“The key question is whether or not the proposed acquisition weakens competition in the supply of pharmaceutical products.”
The ACCC said it was concerned that the proposed acquisition could harm the pharmacies currently supplied by Sigma, leading to a substantial decrease in competition in pharmacy retail.
Sigma is currently incentivized to maximize wholesale sales, but following the transaction, the independent pharmacies it supplies will also be competitors to Chemist Warehouse, the ACCC added.
The ACCC has expressed concerns about the effect of the acquisition on competition in the pharmaceutical sector.
The watchdog also said it was concerned that the merger could allow Chemist Warehouse to “access and use commercially sensitive data relating to pharmacies supplied by Sigma, in a way that harms competition”.
“Following the acquisition, the combined company will be able to use the information obtained to attack or preempt and undermine pharmacies that rival Chemist Warehouse,” Mr. Ridgeway said.
The ACCC said it had not reached a conclusive opinion on any of the above issues.
In a statement to the ASX on Thursday morning, Sigma said the ACCC’s statement was not “unexpected”.
“Sigma and Chemist Warehouse Group believe there is a good case that the proposed merger will not reduce competition and will continue to engage with the ACCC to address its preliminary views and any potential concerns,” the company said.
Sigma chief executive Vikesh Ramsunder said the company was co-operating with the ACCC in its review of the merger.
Chemist Warehouse has been contacted for comment.
Chemist Warehouse is a privately held company with the brands Chemist Warehouse, MyChemist, Ultra Beauty, My Beauty Spot and Optometrist Warehouse.
The company also operates six distribution centers that provide products to its franchisees.
Sigma’s pharmacy brands include Amcal+, Discount Drug Stores and Guardian.
The ACCC will accept submissions on the merger from interested parties until June 27, 2024.