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Consumer watchdog worried about $8.8b Chemist Warehouse merger

A corporate regulator has raised competition concerns about Chemist Warehouse’s $8.8 billion merger with Sigma Healthcare, a key supplier to thousands of independent pharmacies.

Jun 13, 2024, updated Jun 13, 2024
The two companies consider that there are good arguments why the proposed merger would not lessen competition. (AAP Image/Jono Searle)

The two companies consider that there are good arguments why the proposed merger would not lessen competition. (AAP Image/Jono Searle)

The Australian Competition and Consumer Commission has identified a range of preliminary concerns, including at the retail level.

“The transaction would create a merged company that is uniquely vertically integrated across multiple levels of the pharmacy supply chain,” ACCC Commissioner Stephen Ridgeway said on Thursday.

“This new business model for the pharmacy sector could raise barriers to rivals expanding or entering, which may lessen competition.”

Sigma Healthcare is one of three major suppliers to independent pharmacies, and also provides support services to community pharmacies operating as franchisees under Sigma banners such as Amcal + and Discount Drug Stores.

Under the merger, those independent pharmacies that Sigma supplies would be competitors to Chemist Warehouse, and the merged company might be incentivised to undermine them, the ACCC said.

Sigma Healthcare said the regulator’s statement of issues was not unexpected for a transaction of such complexity and noted they reflected the agency’s preliminary views, not its final findings.

The two companies consider that there are good arguments why the proposed merger would not lessen competition and will continue to engage with the ACCC to address its concerns, a statement said.

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“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 Healthcare chief executive and managing director Vikesh Ramsunder.

Although the transaction officially involves Sigma acquiring Chemist Warehouse – a much larger company – it’s effectively a reverse takeover that would result in Chemist Warehouse being listed on the ASX as one of Australia’s 100 biggest companies.

The ACCC said it was soliciting submissions from interested parties and anticipated making a final decision on whether to oppose the merger by September 5, although that timeline could change.

The Pharmacy Guild of Australia said it was encouraging submissions, and was concerned the merger would increase prices while reducing service quality.

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