Chemist Warehouse and Sigma to merge
Two of the biggest names in the pharmacy industry are set to join forces. Not everyone is celebrating.
Pharmacies may give the appearance of being a cottage industry, but that's not the case. Only around one in two chemists are owned by individual pharmacists. The remainder are owned by a handful of corporate giants.
The industry is about to become even more concentrated, with the two biggest players - Chemist Warehouse and Sigma, set to merge.
Privately owned Chemist Warehouse, is Australia's largest pharmacy retailer, with 600 franchisees nationally.
Sigma, which is publicly listed, is a wholesaler with more than 1200 aligned pharmacies nationally.
Long story short, we're talking about two titans of the pharmacy industry joining forces.
Why was the merger approved?
The Chemist Warehouse/Sigma union has been on the cards for the better part of a year. However, the ACCC has taken its time deciding if the merger should go ahead, and rightly so given the issues we've seen around lack of competition in the supermarket sector.
So, it has come as a surprise to many that the ACCC has given the merger its blessing.
ACCC chair Gina Cass-Gottlieb says the ACCC found the proposed merger is "unlikely to substantially lessen competition".
She adds, "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."
Ironically, the big supermarkets may have helped the merger get the green light. That's because pharmacies don't just dispense medicines. They stock everything from cosmetics to sunglasses, and as Cass-Gottlieb notes, "The leading supermarkets are key providers of such products and will continue to provide strong competition."
Sigma stocks jump 30%
From a practical perspective, the merger will be a reverse acquisition of Sigma by Chemist Warehouse. Sigma will acquire all the shares in Chemist Warehouse in exchange for Sigma shares plus $700 million in cash.
When the merger is completed Chemist Warehouse shareholders will hold 85.75% of the ASX-listed merged entity while Sigma shareholders will hold the remaining 14.25%.
Sigma shareholders must be delighted.
The company's shares jumped 30% - from $1.92 to $2.50 following the ACCC giving the merger the thumbs up.
The party may not stop there.
The newly merged company will have opportunities for cost-cutting and efficiency gains that will likely benefit shareholders.
Sigma CEO and managing director, Vikesh Ramsunder, says the merger has "the potential to create a leading ASX-listed healthcare company" based on the complementary strengths of Sigma's distribution infrastructure and Chemist Warehouse's retailing know-how.
Not everyone is celebrating though.
A spokesperson for the Pharmacy Guild of Australia says, "Reduced competition ultimately leads to higher prices for patients and lower service standards."
It warns, "The ACCC will need to carefully monitor the merger and its impact on patients and the diversity of the community pharmacy landscape over the coming years."
For cost-of-living weary consumers, time will tell if prices - and service levels - at the local pharmacy will be impacted.
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