The Australian Competition and Consumer Commission says the proposed merger between Chemist Warehouse and Sigma Healthcare raises “competition concerns” and would be a “major structural change” for the country’s pharmacy sector.
The competition watchdog has released its preliminary statement of issues outlining a number of competition concerns, should the merger between the two companies proceed.
“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 in a statement.
The ACCC said the deal would create a “new business model for the pharmacy sector” that “could raise barriers to rivals expanding or entering, which may lessen competition”.
“This lessening of competition may lead to reduced service quality for goods and services provided in pharmacies as well as higher prices for consumers,” Mr Ridgeway said.
“The transaction may also weaken the competitiveness of the different product and services offered by Sigma’s banner pharmacies.”
The proposed merger would see the company have end-to-end control of the pharmaceutical supply chain, from product creation, distribution, wholesale and retail sales — which the ACCC said it was particularly concerned by.
“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,” Mr Ridgeway said.
Chemist Warehouse and Sigma Healthcare entered into a merger deal in December last year that would see the companies become the largest pharmaceutical retailer in the country, with a total value in excess of $8.8 billion.
Sigma Healthcare owns and operates around 400 pharmacies around Australia under the retail brands of Amcal, Discount Drug Stores, Guardian and PharmaSave, and operates nine distribution centres.
In a statement, Sigma said the ACCC’s announcement was “not unexpected”, given the size and complexity of the proposed merger.
“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 CEO 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 expects to make its final decision about the proposed deal on September 5.
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