ACCC wary of Sigma and Chemist Warehouse acquisition

The Australian Competition and Consumer Commission (ACCC) has raised concerns around the proposed sale of Chemist Warehouse to ASX-listed wholesaler and distributor of prescription medicines, Sigma.

If the acquisition were to go through, the sale could see the pharmacy sector competition weaken within the country, according to the ACCC.

Sigma would acquire all the shares in Chemist Warehouse in exchange for Sigma shares and a $700 million cash consideration.

On Thursday the competition regulator outlined its preliminary competition concerns with the acquisition stating “This transaction is in effect a ‘reverse acquisition’ of Sigma by Chemist Warehouse, resulting in ASX listing of Chemist Warehouse.

According to ACCC once complete Chemist Warehouse shareholders will hold 85.75 percent of the ASX listed merged entity while Sigma shareholders will hold 14.25 percent. 

Sigma acknowledged ACCC's concerns with Sigma CEO and managing director Vikesh Ramsunder stating, “We are co-operating closely with the ACCC and look forward to continuing to do so in the next phase of the merger review [pdf[.  

"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,” Ramsunder said.

ACCC commissioner Stephen Ridgeway also called for insights from the industry by 27 June 2024, given the impact the merger could hold. 

Ridgeway said, “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.”

“We have identified a range of preliminary competition concerns, including at the retail level and as a result of the proposed integration of the merged firm across the wholesale and retail level.

“We want to hear from interested parties, including rival pharmacies as we continue this review.”

Sigma is a major wholesalers of prescription medicines, over-the-counter and front-of-store products.

It also operates franchisees under Sigma banners such as ‘Amcal +’, ‘Discount Drug Stores’, ‘PharmaSave’ and ‘Guardian’.

Meanwhile, Chemist Warehouse is a chain of pharmacies and retail stores under the brands Chemist Warehouse, MyChemist, Ultra Beauty, My Beauty Spot, and Optometrist Warehouse.

Concerns have also been raised that the merged business could use “insights from data obtained to target pharmacies that rival Chemist Warehouse or pre-empt and undermine them,” Ridgeway added.

“Currently independent pharmacies have three main choices for wholesale supply, and banner, franchise arrangements, but given the potential data concerns and risk of competitive harm, the effective options for some pharmacies may reduce to two.”

Ridgeway said, “The transaction would create a merged company that is uniquely vertically integrated across multiple levels of the pharmacy supply chain. This new business model for the pharmacy sector could raise barriers to rivals expanding or entering, which may lessen competition,” Mr Ridgeway said.

“The ACCC has heard many concerns about the impact Chemist Warehouse has had on the pharmacy sector. However, the ACCC is focussed only on the impacts of the acquisition on competition, rather than the pros or cons of different business models.

“The key issue is whether or not the proposed acquisition weakens competition in the supply of pharmaceutical products,” Ridgeway said.

Ridgeway said the ACCC is also concerned the sale would damage Sigma-supplied pharmacies as the Chemist Warehouse might be favoured or “worsen terms to non-Chemist Warehouse banner store”.

Last year, ACCC chair Gina Cass-Gottlieb called for reforms over Australia’s merger laws as they are favoured towards allowing potentially anti-competitive mergers to proceed.