Go ahead for $8.8bn Chemist Warehouse deal
Australia’s competition watchdog will allow the proposed $8.8bn mega merger of pharmacy giants Chemist Warehouse and Sigma Healthcare.
The deal will affect millions of Australian pharmacy customers as the two brands merge into a single enterprise with operations across multiple parts of the pharmacy supply chain.
The Australian Competition and Consumer Commission (ACCC) flagged competition concerns in June shortly after the deal was proposed.
“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 at the time.
But in a fresh statement from Thursday morning, the watchdog said it supported the deal after accepting a “court-enforceable undertaking from Sigma”.
Sigma has pledged to place restrictions on the collection, use and disclosure of confidential data and information from Sigma wholesale customers and franchisees for a period of three years, remain a participating pharmaceutical wholesaler under the Commonwealth Government’s Community Service Obligation arrangements for at least five years and not to hinder franchisees who entered into their franchising arrangements prior to July 1 2024 from terminating their franchise agreements with Sigma, for a period of three years.
“The ACCC found that, with the undertaking, the proposed merger is unlikely to substantially lessen competition,” ACCC Chair Gina Cass-Gottlieb said.
“There is and will continue to be effective competition at all levels of the pharmacy supply chain, capable of constraining a combined Sigma Chemist Warehouse.
“The ACCC’s analysis found that the proposed merger is unlikely to substantially lessen competition nationally or locally because other pharmacies and non-pharmacy retailers will continue to compete to the same extent they compete now.
“Consumers value different aspects of Sigma’s and Chemist Warehouse’s banner pharmacies’ offerings.
“Importantly, consumers will continue to have choice between smaller format stores offering personalised services to consumers and the Chemist Warehouse offering, focused on larger format discount stores and front-of-store offerings.”
Under the deal, Sigma would acquire all the shares in Chemist Warehouse in exchange for Sigma shares and a $700m cash consideration.
Upon completion of the merger, Chemist Warehouse shareholders will hold 85.75 per cent of the ASX-listed merged entity while Sigma shareholders will hold 14.25 per cent.
Sigma is an ASX-listed wholesaler and distributor of prescription medicines, including Pharmaceutical Benefits Scheme prescriptions, over the counter and front of store products with more than 4000 community pharmacies nationally.
Chemist Warehouse is a private company with approximately 600 pharmacies and retail stores and includes the Chemist Warehouse, MyChemist, Ultra Beauty, My Beauty Spot and Optometrist Warehouse brands.
“Critical to our conclusion that a substantial lessening of competition is unlikely is the competitive constraint provided by competing wholesalers including API, EBOS, and CH2,” Ms Cass-Gottlieb said.
EBOS and API are large national wholesalers supplying full product lines, the ACCC said in its statement, and CH2 is a smaller wholesaler that supplies both community pharmacies and the hospital sector.
The ACCC said each of these wholesalers had agreements with the federal government to distribute PBS medicines as well as spare capacity to supply new retail pharmacy customers.
“The ACCC’s investigation found that these wholesalers have actively competed for new pharmacy customers and retail pharmacies have switched between wholesalers,” the watchdog continued.
“The undertaking given by Sigma will ensure that pharmacies currently engaged in longer term contracts with Sigma will also be able to readily switch wholesalers should they choose to do so, strengthening the competitive constraint of these alternative wholesale supply options.
“The ACCC therefore formed the view that a combined Sigma Chemist Warehouse will be unable to foreclose downstream pharmacies that compete with Chemist Warehouse franchisees.
Ms Cass-Gottlieb also said the ACCC had considered the merger’s overall competition impact in pharmacy retailing.
“There are numerous pharmacy retailers that will continue to provide meaningful and ongoing competition to Chemist Warehouse and Sigma’s banner pharmacies as well as non-pharmacy retailers that sell front-of-store products and some over-the-counter products,” she said.
“The leading supermarkets are key providers of such products and will continue to provide strong competition.”
For prescription medicines, pricing will continue to be regulated by the Australian government’s Pharmaceutical Benefits Scheme.
The ACCC’s green light put booster rockets under Sigma’s share price on Thursday morning, with the stock leaping 28 per cent at the opening bell.