ACCC fears rural and regional areas will be hit hard under ACL’s hostile takeover of Healius

After failing to win the support of Healius’s biggest shareholders, ACL has also failed to get the backing of the ACCC for its plans to become Australia’s biggest pathology operator.

Australian Clinical Labs has failed to win support of the competition regulator for its hostile reverse takeover of bigger rival Healius.

The Australian Competition & Consumer Commission believes that the nil-premium takeover will substantially lessen competition in the pathology market, particularly in rural and regional areas, as well as in veterinary services.

ACL was already fighting an uphill battle, with Healius’s two biggest shareholders Perpetual and Tanarra, which own more than 20 per cent of the company, also rejecting the proposed merger.

ACCC commissioner Stephen Ridgeway said if the deal proceeded, the combined group would become Australia’s biggest pathology operator, owning more than 50 per cent of the nation’s collection centres.

He said while competition in pathology services may be less readily apparent to patients, particularly if they are bulk billed, the extent of bulk billing offered by providers is one of the ways they compete.

“The ACCC is concerned that the significant reduction in competition could lead to adverse consequences for patients, including reduced levels of bulk billing, higher co-payments for privately billed services, collection centre closures, less frequent collection of samples, or longer turnaround times,” Mr Ridgeway said.

“Market feedback has identified strong concerns about the impact of this acquisition on community pathology services, and there is the potential for even greater impacts in regional and remote areas.”

ACL and Healius both supply pathology services to the community, private and public hospitals, and veterinary clinics. They compete closely with one another and offer services under well-known brands familiar to many in the community, Mr Ridgeway said.

He said a lack of competition would be particularly felt in Victoria if the merger proceeded, given ACL and Healius are two of the three private operators that provide public in-patient services.

The ACCC’s preliminary view is that the combined ACL and Healius may be able to increase prices or reduce service quality in bids for public hospital tenders, which would particularly affect Victoria. Additionally, the proposed acquisition may lead to a substantial lessening of competition in veterinary pathology services, Mr Ridgeway said.

“It would combine two important competitors in already concentrated markets for the supply of veterinary pathology services in Victoria and South Australia.”

Mr Ridgeway’s comments almost two months after ACL criticised Healius’s board - led by chair Jenny Macdonald - saying Healius statement to shareholders advising against the deal was “fundamentally flawed”, “inaccurate” and “misleading”.

Ms Macdonald questioned the $95m in cost savings that ACL promised shareholders it could deliver from a merged group, and said ACL’s nil-premium offer had slid to an “implied discount”. Crucially, she said, Healius shareholders were being asked to surrender control of the company without a premium.

But ACL accused Healius’s board of “failing shareholders” and “not acting in their best interests”.

“Healius’s target’s statement is fundamentally flawed. The proposed merger represents the most value accretive option available to Healius shareholders,” ACL said, citing Healius’s rejection of engaging an independent expert to assess the bid.

ACL said the synergies it expected to deliver from a combined group were close to the $80m that Healius estimated in 2020 when it was considering a merger with ACL.

ACL said that Healius’s board had also declined an offer to meet and discuss the rationale behind the forecast cost savings.

ACL – which was hit with a cyber attack, involving hackers accessing the test records of hundreds of thousands of patients, last year – also said its management is better placed to lead Healius.

It has proposed an all-scrip takeover, which involves offering 0.74 ACL shares for each Healius share. This would equate to Healius and ACL shareholders owning 68 and 32 per cent respectively of the new entity.

The ACCC is seeking public submission until August 10.

ACL said it “continues to strongly believe, based on publicly available information, that the proposed merger is the most value accretive option for Healius shareholders and ACL shareholders”.

The ACCC is expected to make a final decision on October 12.