The ACCC has raised preliminary competition concerns over a planned Sigma-Chemist Warehouse merger.

The Australian Competition and Consumer Commission (ACCC) says the merger could have potential adverse impacts on competition within the pharmacy sector.

ACCC Commissioner Stephen Ridgeway says the merger would be a significant structural change, combining the largest pharmacy chain by revenue with a major wholesaler to independent pharmacies. 

“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,” Ridgeway said.

The ACCC's concerns span several areas, notably the integration of retail and wholesale operations which could impact market dynamics. 

“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,” Ridgeway added.

Sigma is a major wholesaler of prescription medicines, over-the-counter (OTC) products, and front-of-store (FOS) products, also offering brand and support services to community pharmacies under various banners, such as Amcal+, Discount Drug Stores, PharmaSave, and Guardian. 

Chemist Warehouse, on the other hand, operates around 600 pharmacies and retail stores under banners including Chemist Warehouse, MyChemist, Ultra Beauty, My Beauty Spot, and Optometrist Warehouse. It also functions as a wholesaler and distributor.

The proposed merger would create a vertically integrated company, combining multiple levels of the pharmacy supply chain. 

The regulator says this could potentially erect barriers for competitors. 

“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,” Ridgeway said.

The ACCC is concerned about the potential negative impacts on independent pharmacies currently supplied by Sigma, which would become competitors to Chemist Warehouse. 

“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 says.

Another major concern is the possibility of Chemist Warehouse accessing and utilising commercially sensitive data from Sigma-supplied pharmacies, which could harm competition. 

“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.

The ACCC also highlighted potential negative outcomes for consumers, including reduced service quality and higher prices. 

“This lessening of competition may lead to reduced service quality for goods and services provided in pharmacies as well as higher prices for consumers. The transaction may also weaken the competitiveness of the different product and services offered by Sigma’s banner pharmacies,” Ridgeway said.

The merger could also impact upstream markets for pharmacy retail products, particularly affecting suppliers with limited consumer access paths. 

“This concern is likely to be stronger in respect of products where suppliers have fewer paths to consumers, for example, suppliers of prescription medicines and over-the-counter products that can only be supplied in pharmacies, and not for example, in supermarkets,” Ridgeway added.

The ACCC has not yet reached a final decision on these issues and is This email address is being protected from spambots. You need JavaScript enabled to view it. by 27 June 2024. 

While Sigma is set to acquire Chemist Warehouse, this transaction effectively represents a reverse acquisition, resulting in Chemist Warehouse's ASX listing. 

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

Post-merger, Chemist Warehouse shareholders will hold 85.75 per cent of the ASX-listed entity, while Sigma shareholders will hold 14.25 per cent.