Chemist Warehouse and Sigma Healthcare have cleared one of the last hurdles needed to complete their $8.8 billion merger. The two pharmacy giants have spent months addressing concerns to ensure the deal doesn’t harm competition and can receive official approval.
Key Concerns and Approvals
Concerns have been raised about the potential impacts of these major players merging. RMIT Associate Professor Angel Zhong told Yahoo Finance that long-term price hikes could be a result of reduced competition.
“When competition lessons, it means you are less stressed… you are less motivated to provide better services and you’re less motivated to reduce your prices to attract customers because you now have a larger degree of bargaining power,” she said.
Approval Process
The deal looks set to finalize early next year after consulting firm Grant Thornton approved it. An independent assessor was brought in to ensure existing and future related-party arrangements with Chemist Warehouse were “fair and reasonable” for non-associated Sigma shareholders.
The report found only a minor difference between the franchise arrangements of the two companies, with Chemist Warehouse’s fees just 0.3 percent higher than those under Sigma’s umbrella brands like Amcal, Guardian, PharmaSave, and Discount Drug Store.
Minimal Concerns for Shareholders
Chemist Warehouse also operates MyChemist, Ultra Beauty, My Beauty Spot, and Optometrist Warehouse. The minimal fee differences alleviated major concerns for Sigma shareholders, who are now expected to approve the deal.
Regulatory Review
Grant Thornton determined these existing and future arrangements are “fair and reasonable.” Their investigation also addressed fears of decreased competition, noting pharmacists would still be limited to owning between four and six locations, depending on the state.
Moving Forward
With minimal obstacles remaining, the merger will be put to a shareholder vote on January 29. If approved, Sigma expects the merger could be implemented by February 12.
The combined Chemist Warehouse Sigma Healthcare brand will own nearly 1,000 pharmacies nationwide, capturing a 16 percent market share. Independent pharmacies make up 45 percent of the market, followed by EBOS Healthcare Australia with 10.5 percent, Australian Pharmaceutical Industries (API) with 8 percent, and Wesfarmers at 7.8 percent.
Concerns About Market Impact
The Motley Fool’s chief investment officer Scott Phillips expressed concerns about the long-term impact on competition. “In 10 or 15 years, someone will say, ‘What were we doing in 2024 when we let Chemist Warehouse effectively control the two wholesalers in the industry, get bigger, and become a behemoth that no one could compete with?'” he said.
Conclusion
While the merger is set to proceed, concerns about reduced competition and market power remain. Stakeholders and consumers alike will be closely watching how this merger impacts the pharmaceutical retail landscape in the years to come.
