Competition regulator greenlights biggest pharmacy merger despite opposition

In a move set to redefine Australia’s pharmacy landscape, Chemist Warehouse and Sigma Healthcare will be merging to create a new multi-billion-dollar giant, marking the industry’s largest shift in years.

In explaining the decision, ACCC Chair Gina Cass-Gottlieb commented, “The ACCC found that, with the undertaking, the proposed merger is unlikely to substantially lessen 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.”

Combined, Chemist Warehouse and Sigma will oversee approximately 950 pharmacies, amounting to 16% of pharmacies nationwide.

The merger plan involves Sigma acquiring all shares in Chemist Warehouse in exchange for Sigma shares and a cash payment of $700 million. Upon completion, Chemist Warehouse shareholders will hold a dominant 85.75% stake in the newly merged ASX-listed entity, with Sigma shareholders holding the remaining 14.25%. This arrangement is effectively a reverse acquisition, positioning Chemist Warehouse as the controlling partner in the merger.

Cass-Gottlieb highlighted the ACCC’s assessment that the merger will not meaningfully impact competition at a national or local level, as other pharmacies and retailers will continue competing at similar levels. She noted the critical role of alternative wholesalers like API, EBOS, and CH2 in maintaining market competition.

Mario Verrocchi, Chief Executive Officer of Chemist Warehouse Group, expressed enthusiasm for the merger. “We welcome the ACCC’s decision. Chemist Warehouse has a history of driving innovation and competition through a high-volume, low-prices model. Our entry into the pharmacy industry in 2000 added a new dimension to competition, fostering a more competitive and dynamic industry.”

The ACCC’s approval follows Sigma Healthcare’s commitment to several enforceable actions. Sigma agreed to remain a participating pharmaceutical wholesaler in the Commonwealth Government’s Community Service Obligation for five years, ensuring continuity in its service delivery obligations.

Additionally, Sigma committed not to hinder franchisees, wholesale customers, and buying group customers who had agreements prior to July 2024 if they choose to terminate their agreements. The agreement also requires data protection measures for any customers who elect to end their agreements with Sigma, and independent monitoring of Sigma’s compliance with these commitments.

Sigma Healthcare CEO Vikesh Ramsunder said in a statement, “The proposed transaction has the potential to create a leading ASX listed healthcare company through the combination of the complementary strengths of Sigma’s state-of-the-art pharmaceutical distribution infrastructure with Chemist Warehouse Group’s retailing know-how.”

Verrocchi further added, “This merger sets the stage for a new chapter for both Chemist Warehouse and Sigma, focused on delivering greater value to our customers, employees, franchisees, and shareholders.”

The Pharmacy Guild of Australia, however, voiced reservations about the merger, stating that “many unanswered questions remain, despite the undertakings.”

The Guild urged the ACCC to closely monitor the merger’s impact on patients and the diversity within the community pharmacy landscape. They warned that reducing wholesaling options for community pharmacies would lessen competition, ultimately leading to higher prices for patients and diminished service standards.

Expressing disappointment with the ACCC’s reliance on behavioural rather than structural undertakings, the Guild criticised the growing consolidation trend in healthcare services such as oncology, general practice, and pathology, which they argue results in “non-competitive duopolies” and challenges for smaller, community-focused businesses.

Valued at around $28 billion based on closing share price on Wednesday, the merger is anticipated to be finalised by mid-2025.

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