Sigma Healthcare, Chemist Warehouse gets good medicine from ACCC for $8.8b merger

The consumer watchdog has given its blessing to the $8.8 billion merger of Sigma Healthcare and Chemist Warehouse but will require Sigma to meet certain concessions.

The Australian Competition and Consumer Commission rejected fears in some quarters that the tie-up — which will catapult the privately held pharmacy franchisor Chemist Warehouse onto the Australian Securities Exchange — would reduce competition in the lucrative retail space.

Both companies run major pharmacy chains, along with wholesale businesses that supply there own and other smaller pharmacies.

Sigma operates pharmacies under banners such as Amcal+ and Discount Drug Store.

The ACCC had initially feared the tie-up would reduce competition in pharmacy retailing by removing the price pressure Chemist Warehouse and Sigma stores impose on each other and lead to higher prices for customers.

But chair Gina Cass-Gottlieb said the commission was now confident there would continue to be effective competition across the pharmacy supply chain that would be capable of constraining the combined group.

“The ACCC’s analysis found that the proposed merger is unlikely to substantially lessen competition nationally or locally because other pharmacies and non-pharmacy retailers will continue to compete to the same extent they compete now,” Ms Cass-Gottlieb said.

“Consumers value different aspects of Sigma’s and Chemist Warehouse’s banner pharmacies’ offerings.

“Importantly, consumers will continue to have choice between smaller format stores offering personalised services to consumers and the Chemist Warehouse offering, focussed on larger format discount stores and front-of-store offerings.”

The ACCC also found that a combined group was unlikely able to influence Sigma banner pharmacies to the same extent Chemist Warehouse influences its current franchisees.

Central to the ACCC green light was the supply of pharmacy retail products, including generic medicines.

It concluded there were multiple channels available to suppliers and manufacturers of the products to reach consumers, including through alternative wholesalers and direct to pharmacy arrangements.

For products other than PBS medicines, non-pharmacy retailers were also key alternatives.

But the ACCC said evidence shows that retail pharmacies do not face significant barriers to switching and pharmacy customers do switch wholesalers, although concerns remained for pharmacy customers in longer term wholesale and/or franchise agreements with Sigma.

“To help ensure those pharmacies in longer term contracts are able to switch easily to a new wholesaler or banner group, we accepted an undertaking that requires Sigma not to enforce contractual restrictions on exit and ensures payments under contracts do not make it costly for a pharmacy to switch,” Ms Cass-Gottlieb said.

The enforceable undertaking also requires Sigma to safeguard and delete the data of those pharmacies that choose to switch and to require the merged Sigma Chemist Warehouse to continue as a pharmaceutical wholesaler under the Commonwealth Government’s Community Service Obligation (CSO) arrangements for five years.

“The ability of pharmacies to readily exit their existing agreements with Sigma will maintain and enhance the ability of alternative wholesalers to constrain the merged entity,” Ms Cass-Gottlieb said.

The ACCC pushed back the scheduled date for an announcement on the deal with Chemist Warehouse from October 24 to November 7 to allow for consultations after Sigma put forward the concessions in early October in a final bid to get the seal of approval.

Chemist Warehouse’s annual report — released along with Sigma’s half-year results last week — showed profit before tax hit $574 million in 2024, up 33.7 per cent on the prior corresponding period.

It opened 19 new Australian stores in 2024, and another 16 internationally, taking the total to 637.

For the six months to the end of July, Sigma reported profit of $13.7m, up 303.6 per cent, on revenue of $1.84 billion, up 17.3 per cent.