The Australian Competition and Consumer Commission (ACCC) has decided not to oppose the merger between Sigma Healthcare Limited and CW Group Holdings Limited (Chemist Warehouse) after accepting a court-enforceable undertaking from Sigma.
On 11 December 2023, Sigma and Chemist Warehouse entered into a merger implementation agreement under which Sigma would acquire all the shares in Chemist Warehouse in exchange for Sigma shares and a $700 million cash consideration.
Upon completion of the proposed merger, Chemist Warehouse shareholders will hold 85.75% of the ASX listed merged entity while Sigma shareholders will hold 14.25%. The transaction is in effect a reverse acquisition of Sigma by Chemist Warehouse.
“The ACCC found that, with the undertaking, the proposed merger is unlikely to substantially lessen competition. 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,” ACCC Chair Gina Cass-Gottlieb said.
“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,” Cass-Gottlieb said.
Sigma is an ASX-listed wholesaler and distributor of prescription medicines (including Pharmaceutical Benefits Scheme (PBS) prescriptions), over the counter (OTC) and front of store (FOS) products to over 4,000 community pharmacies nationally.
Chemist Warehouse is an unlisted Australian public company. It is a franchisor to approximately 600 pharmacies and retail stores under the following banners: Chemist Warehouse, MyChemist, Ultra Beauty, My Beauty Spot, and Optometrist Warehouse. Approximately 550 of these are Chemist Warehouse and MyChemist pharmacies.
The ACCC said consumers would still have choices between different pharmacy formats, from personalised small stores to larger discount stores like Chemist Warehouse.
Changes in the pharmacy regulatory environment mean that a combined Sigma Chemist Warehouse is unlikely to influence Sigma banner pharmacies as much as Chemist Warehouse influences its current franchisees, it said.
“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,” Cass-Gottlieb said.
The ACCC's investigation found that pharmacies frequently switch wholesalers, and the undertaking from Sigma ensures this ability remains intact for pharmacies in long-term contracts.
The ACCC concluded that the merger will not enable the combined entity to foreclose downstream pharmacies competing with Chemist Warehouse franchisees.
Numerous pharmacy retailers and non-pharmacy retailers will continue to provide meaningful competition in the market.
Pricing for prescription medicines will continue to be regulated by the Australian Government’s Pharmaceutical Benefits Scheme (PBS).
The ACCC found multiple channels for suppliers and manufacturers to reach consumers, ensuring competition remains robust.
“We received many submissions from pharmacists and other market participants expressing concerns about this transaction,” Cass-Gottlieb said.
“We reviewed the transaction very closely to test these concerns and conducted detailed analysis of Chemist Warehouse and Sigma’s internal documents.”
“The evidence gathered, augmented by the undertaking given by Sigma, led us to conclude that a substantial lessening of competition is unlikely,” Cass-Gottlieb said.
The enforceable undertaking requires Sigma to allow pharmacies in long-term contracts to switch easily to new wholesalers or banner groups without incurring high costs.
The undertaking also requires Sigma to safeguard and delete data of pharmacies that choose to switch wholesalers.
The merged entity is required to continue operating under the Commonwealth Government’s Community Service Obligation arrangements for five years, ensuring timely access to PBS medicines for all Australians.
“The ability of pharmacies to readily exit their existing agreements with Sigma will maintain and enhance the ability of alternative wholesalers to constrain the merged entity,” Cass-Gottlieb said.
More information, including the undertaking can be found on the ACCC’s public register here: Sigma Healthcare - Chemist Warehouse Group.
As at 8:23 am (AEDT) Friday 8 November 2024, Sigma Healthcare Ltd (ASX: SIG) has a stock price of $2.43. The market capitalisation is approximately $3.17 billion.