Proposed Sigma Healthcare-Chemist Warehouse $8.8b merger gets ACCC green light

The Australian Competition and Consumer Commission (ACCC) has approved a proposed $8.8 billion merger between independent pharmacy network owner Sigma Healthcare (ASX: SIG) and Chemist Warehouse Group.

The decision follows a rigorous review process that included extensive public consultation by the ACCC and engagement with both companies.

It found the proposed merger would be unlikely to substantially lessen competition within the national or local pharmaceutical sector.

‘Effective competition’

“There is and will continue to be effective competition at all levels of the pharmacy supply chain, capable of constraining a combined Sigma-Chemist Warehouse,” the ACCC said.

The competition watchdog also found that a combined Sigma-Chemist Warehouse would be unlikely to greatly impact the wholesale market.

“Critical to our conclusion that a substantial lessening of competition is unlikely is the competitive constraint provided by competing wholesalers including Australian Pharmaceutical Industries, EBOS Group and Clifford Hallam Healthcare,” the ACCC said.

Each of the three companies cited has agreements with the federal government to distribute Pharmaceutical Benefits Scheme (PBS) medicines and spare capacity to supply new retail pharmacy customers.

Sigma signed a five-year deal in June to supply PBS medicines and fast-moving consumer goods to Chemist Warehouse, replacing a current arrangement with rival EBOS.

Product supply

The ACCC also considered whether the acquisition would impact the supply of pharmacy retail products, including generic medicines.

It determined that there were multiple channels available to suppliers and manufacturers of these products to reach consumers, including through alternative wholesalers and direct-to-pharmacy arrangements.

For products other than PBS medicines, non-pharmacy retailers remained key options.

“We received many submissions from pharmacists and other market participants expressing concerns about this transaction [and] the evidence gathered led us to conclude that a substantial lessening of competition is unlikely.”

Merger agreement

Sigma and Chemist Warehouse entered into a merger implementation agreement in December that would see Sigma acquire all the shares in Chemist Warehouse in exchange for Sigma shares and a $700 million cash consideration.

Should the merger proceed as planned, Chemist Warehouse chief executive officer Mario Verrocchi would continue to run the Chemist Warehouse business and executives Damien Gance and Danielle Di Pilla would join the board of the merged company.

Sigma directors would also join the board of the broader company, which is expected to come together in late 2025 once competition and other regulatory issues have been addressed.

After the merger, Chemist Warehouse shareholders—including billionaire founders Jack Gance and Mr Verrocchi—would own 85.75% of the combined group.

Critical milestone

The ACCC approval is believed to be a critical milestone in the proposed merger, which would create a leading publicly-listed healthcare company with complementary strengths in pharmaceutical distribution and retail operations.

Sigma chief executive officer Vikesh Ramsunder said the transaction would build a stronger business and help accelerate Sigma’s long-term growth ambitions.

He said the company was now preparing the documentation required for shareholders to vote on the proposal.