Sigma shares plunge after merger concerns flagged by ACCC
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More news: Shares in Sigma Healthcare plummeted at the start of trading on the ASX after the competition regulator outlined concerns with its proposed acquisition of Chemist Warehouse.
Sigma shares tumbled as much as 9.9% at market open, before recouping some losses to move 5.8% lower at $1.14 per share by 10:45am AEST.
ACCC raises concerns with Sigma-Chemist Warehouse merger
The news: The competition regulator has outlined concerns with Sigma Healthcare's proposed acquisition of fellow pharmacy retailer Chemist Warehouse.
The context: The Australian Competition and Consumer Commission (ACCC) said the merged company could raise barriers to rivals entering or expanding in the pharmacy sector, which may lessen competition.
As part of its review of the transaction, the ACCC said it heard "many concerns" about the impact Chemist Warehouse had on the pharmacy sector, although the "key issue" was whether or not the proposed acquisition weakened competition in the supply of pharmaceutical products.
It was also concerned that a merger might harm pharmacies currently supplied by Sigma, leading to a "substantial lessening" of competition in pharmacy retailing. Currently, Sigma is incentivised to maximise wholesale sales, but after the transaction the independent pharmacies it supplies will also be competitors to Chemist Warehouse, the regulator said.
Additionally, the ACCC said the deal might enable Chemist Warehouse to access and use commercially sensitive data relating to pharmacies supplied by Sigma, in a way that damages competition. It also noted the acquisition could impact upstream markets for the supply of pharmacy retail products, particularly affecting suppliers of products that compete with Chemist Warehouse and Sigma’s own-label and private label products.
Sigma said the ACCC's announcement was "not unexpected for a proposed transaction of this complexity". It noted that Sigma and Chemist Warehouse believed there were "good arguments why the proposed merger will not lessen competition" and both companies would continue to engage with the regulator.
The ACCC anticipates making a final decision on the proposed merger, which was announced in December 2023, on 5 September.
What they said: ACCC commissioner Stephen Ridgeway said: "This is a major structural change for the pharmacy sector, involving the largest pharmacy chain by revenue merging with a key wholesaler to thousands of independent pharmacies that in turn compete against Chemist Warehouse".
"In particular, we are focused on how the newly merged company may have the ability and incentive to favour Chemist Warehouse stores or worsen terms to non-Chemist Warehouse banner stores, raising their costs and rendering them less competitive," he said.
"This lessening of competition may lead to reduced service quality for goods and services provided in pharmacies as well as higher prices for consumers. The transaction may also weaken the competitiveness of the different product and services offered by Sigma’s banner pharmacies."
Sigma CEO and managing director Vikesh Ramsunder said: "We are co-operating closely with the ACCC and look forward to continuing to do so in the next phase of the merger review".
"The proposed transaction will ensure that Sigma, consistent with its regulator obligations, can continue to serve franchisee and independent pharmacies alike with a competitive offering, whilst delivering a transformational change for all Sigma stakeholders," he said.
The sources: ASX announcement, ASX announcement
