The Australian Competition and Consumer Commission (ACCC) has raised concerns that a proposed merger between Sigma Healthcare and Chemist Warehouse could lead to a “major structural change” of the nation’s pharmacy sector.
The ACCC warned the $8.8 billion deal would result in thousands of independent pharmacies having to compete against the discount pharmacy.
“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 in a statement.
“This new business model for the pharmacy sector could raise barriers to rivals expanding or entering, which may lessen competition.”
Sigma is one of the largest wholesalers of prescription medicines and operates franchise pharmacies; Amcal +, Discount Drug Stores, PharmaSave and Guardian.
The ACCC is concerned pharmacies currently supplied by Sigma could be harmed by the deal as Chemist Warehouse could get favourable treatment, enabling them to have full control of the pharmaceutical supply chain.
“In particular, 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,” Ridgeway said.
The ACCC expressed concern the merger would also allow Chemist Warehouse to access and use commercially sensitive data about its competitors.
“Following the acquisition, the merged company may be able to use insights from data obtained to target pharmacies that rival Chemist Warehouse or pre-empt and undermine them,” Ridgeway said.
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“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.”
Sigma said the ACCC’s announcement was ”not unexpected for a proposed transaction of this complexity”.
“We are cooperating closely with the ACCC and look forward to continuing to do so in the next phase of the merger review,” said chief executive and managing director 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 ACCC is expected to make its final decision about the proposed acquisition on September 5.