ACCC clears Chemist Warehouse and Sigma’s $8.8b mega deal

The competition watchdog says cost of living pressures were front of mind in its decision to wave through the mega-merger between Chemist Warehouse and Sigma that will form an $8.8 billion industry titan owning 16 per cent, or 950, of Australia’s pharmacies.

Australian Competition and Consumer Commission chair Gina Cass-Gottlieb indicated Sigma’s proposals to waive fees for pharmacies looking to exit the group and delete their data from its books got the deal across the line and helped overcome the regulator’s initial concerns about reduced competition.

“Do not think that this is a decision against the cost of living. The ACCC has carefully considered the question of consumers here,” Cass-Gottlieb told this masthead. “The best deliverer of cheap pharmaceutical products is the Chemist Warehouse discount price offer. Just remember that.”

ACCC chair Gina Cass-Gottlieb at a press conference in May.Credit: Edwina Pickles

The ACCC head argued the deal didn’t combine two pharmacy wholesalers. “There is one wholesaler and a set of banner groups joining with another set of banner groups, and there are multiple banner groups. And so we do not think it is diminishing competition.”

Cass-Gottlieb said that Chemist Warehouse often provided cheaper prices for cost-sensitive consumers, while still competing with smaller community pharmacies that offer more specialised services.

“Consumers will continue to have a 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.

Investors cheered the decision, sending Sigma’s share price more than 30 per cent higher in early trade. They closed the session 24.9 per cent stronger at $2.43.

Chemist Warehouse chairman and co-founder Jack Gance: the pharmacy’s merger with Sigma will not be opposed by the ACCC.Credit: Eamon Gallagher

Cass-Gottlieb said pharmacies and non-pharmacy retailers would keep competing to the same extent they do currently, and that consumers valued different aspects of the pharmacy brands operating under both companies. ASX-listed Sigma is a medicine and over the counter wholesaler and also a pharmacy franchisor under the Amcal+ and Discount Drug Store brands.

Chemist Warehouse is a pharmacy franchisor that distributes to its own stores under the MyChemist, Ultra Beauty, My Beauty Spot, and Optometrist Warehouse brands.

The competition watchdog had previously raised concerns that the proposal could lessen competition on the retail and wholesale levels, hinder rivals from growing or expanding, and result in the closure of chemists.

The Pharmacy Guild has also been a staunch opponent of the deal, arguing in a submission that there was “no way to prevent this structural market change and the associated consumer harms from occurring if the merger proceeds, [...] no matter what undertakings are proposed”.

Cass-Gottlieb acknowledged that many pharmacists and other industry members had expressed concern about the deal, with Sigma and Chemist Warehouse’s internal documents subjected to detailed analysis.

Sigma’s court-enforceable undertaking requires it not to enforce contractual restrictions or expensive fees on pharmacies that want to exit the group and to safeguard and delete the data of those pharmacies that switch.

As part of the undertaking, Sigma will also appoint an independent auditor to monitor, supervise and report to the ACCC on its compliance in this regard.

“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.

Competing wholesalers like Australian Pharmaceutical Industries (API), which is owned by Wesfarmers and operates Priceline and Soul Pattinson, EBOS and CH2, act as competitive constraints, which was critical to the watchdog’s conclusion that substantial lessening of competition was unlikely.

Chemist Warehouse CEO Mario Verrocchi welcomed the ACCC’s decision.

“By bringing together Sigma’s advanced distribution and logistics capabilities with Chemist Warehouse’s strengths in retail and marketing, we are creating an opportunity that will benefit both companies’ shareholders and customers,” he said in a statement.

“The proposed merger sets the stage for a new chapter of growth for both Chemist Warehouse and Sigma, aimed at delivering greater value to our customers, employees, franchisees, and shareholders.”

Sigma chief executive Vikesh Ramsunder said the decision was a critical milestone and provided “conviction” to progress to the next steps of the merger plan.

“We believe the proposed merger will create a stronger business and accelerate our long-term growth ambitions for the benefit of our stakeholders,” he said in a statement.

The Pharmacy Guild has been contacted for comment.

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