ACCC Raises ‘Competition Concerns’ Over Chemist Warehouse and Sigma Healthcare Merger in Australia

Summary: The Australian Competition and Consumer Commission (ACCC) has expressed concerns that the proposed merger between Chemist Warehouse and Sigma Healthcare could reduce competition, potentially harming the pharmacy sector and consumers.

Details: Chemist Warehouse aims to merge with Sigma Healthcare, which would create an $8.8 billion publicly listed company if approved. The ACCC is currently seeking submissions until June 27 and will announce its final decision on September 5.

A proposed merger between discount pharmacy giant Chemist Warehouse and Sigma Healthcare risks reducing competition in Australia’s pharmacy sector and could result in consumers paying higher prices, the Australian Competition and Consumer Commission has warned.

The competition watchdog has released its preliminary statement of issues into the $8.8 billion deal, outlining a number of “competition concerns” that would deliver substantial changes for the pharmaceutical industry.

“This is a major structural change for the pharmacy sector, involving the largest pharmacy chain by revenue merging with a key wholesaler to thousands of independent pharmacies that in turn compete against Chemist Warehouse,” ACCC Commissioner Stephen Ridgeway said in a statement.

The ACCC said the deal would create a “new business model for the pharmacy sector” that “could raise barriers to rivals expanding or entering, which may lessen competition”.

“This lessening of competition may lead to reduced service quality for goods and services provided in pharmacies as well as higher prices for consumers,” Mr Ridgeway said.

“The transaction may also weaken the competitiveness of the different products and services offered by Sigma’s banner pharmacies.”

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The proposed merger would see the company have end-to-end control of the pharmaceutical supply chain, from product creation, distribution, wholesale and retail sales — which the ACCC said it was particularly concerned by.

“We are focused on how the newly merged company may have the ability and incentive to favour Chemist Warehouse stores or worsen terms to non-Chemist Warehouse banner stores, raising their costs and rendering them less competitive,” Mr Ridgeway said.

 

 

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Chemist Warehouse and Sigma Healthcare entered into a merger deal in December last year that would see the companies become the largest pharmaceutical retailer in the country, with a total value in excess of $8.8 billion.

Sigma Healthcare owns and operates around 400 pharmacies around Australia under the retail brands of Amcal, Discount Drug Stores, Guardian and PharmaSave, and operates nine distribution centres. In a statement, Sigma said the ACCC’s announcement was “not unexpected”, given the size and complexity of the proposed merger. “We are co-operating closely with the ACCC and look forward to continuing to do so in the next phase of the merger review,” said Sigma CEO Vikesh Ramsunder. “The proposed transaction will ensure that Sigma, consistent with its regulatory obligations, can continue to serve franchisee and independent pharmacies alike with a competitive offering, whilst delivering a transformational change for all Sigma stakeholders.”

The deal would also see Chemist Warehouse be listed on the Australian Securities Exchange, given Sigma is already a publicly traded company. Sigma’s share price fell by more than 6 per cent during trade on Thursday morning after the ACCC’s announcement. The ACCC expects to make its final decision about the proposed deal on September 5.

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