Chemist Warehouse's Sigma merger hinges on vertical integration views
The ACCC's decision to flag concerns with the $8bn deal may have spooked the markets, but competition law experts are taking a more nuanced view.
The competition regulator's decision last week to flag preliminary concerns over Chemist Warehouse's $8 billion reverse merger with Sigma Healthcare may have spooked investors and prompted grim warnings from analysts, but top lawyers who specialise in corporate deals are taking a far more nuanced view of the situation.
The Australian Competition and Consumer Commission's statement of issues on the deal, which would combine one of the country's biggest pharmacy wholesalers with one of the biggest retailers, triggered a significant sell-off in Sigma shares and also set off alarm bells among analysts. "We don’t think Sigma will overcome the ACCC’s concerns." Morningstar analysts said.
At the top of the list of the ACCC's potential objections were concerns that the vertical integration inherent in the deal could make it harder for new entrants to compete in the pharmacy industry. Macquarie analysts described these vertical integration concerns as "the most challenging for CW/SIG to answer".
But Hannah Marshall of Good Company Law pointed out "vertical integration is quite common" in many industries, including pharmacies.
