This appeared last week:
Chemist Warehouse merges with Sigma Healthcare to form
$32 billion ASX giant
Company News
by Finance
News Network February 14, 2025 10:08 AM
Chemist
Warehouse and Sigma Healthcare have officially merged, creating a $32 billion
pharmacy giant that debuted on the Australian Securities Exchange (ASX) on 13
February 2025. The merger establishes one of the country’s largest pharmacy
networks, with Chemist Warehouse becoming a wholly owned subsidiary of Sigma
Healthcare.
Chemist
Warehouse co-founders Jack Gance, Sam Gance, and Mario Verrocchi were present
at the ASX for the market debut, ringing the opening bell to mark the occasion.
Addressing the crowd, Verrocchi described the listing as a milestone achieved
through decades of perseverance.
“After 50
years of toil, 50 years of grind, a bit of blood, sweat, and tears, we’ve
established ourselves as the leaders of this industry,” Verrocchi said.
Chemist
Warehouse, founded in 1972, has built its success on high-volume, low-cost
retail sales, offering competitive pricing on a wide range of skincare, beauty,
vitamin, and over-the-counter products.
The company
also operates MyChemist, Ultra Beauty, My Beauty Spot, and Optometrist
Warehouse, expanding its presence beyond traditional pharmacies.
Leadership
Structure Post-Merger
In the merged
entity, Sigma Healthcare’s CEO and Managing Director, Vikesh Ramsunder, will
continue in his role, overseeing the combined operations. Mario Verrocchi,
co-founder and CEO of Chemist Warehouse, will manage the retail pharmacy chains
under the merged group, including Chemist Warehouse, Amcal, and Discount Drug
Stores. Additionally, Chemist Warehouse co-founders Jack Gance and Mario
Verrocchi have been appointed to the board of the merged company, contributing
their extensive industry experience to the strategic direction of the new
entity.
A Dominant
Force in the Pharmacy Sector
The newly
merged entity brings together Chemist Warehouse’s nearly 600 stores with
Sigma’s network of 340 Amcal and Discount Drug Stores outlets, creating a
business that now controls 16 percent of Australia’s pharmacies.
Under the
deal, Chemist Warehouse shareholders own 85.75 percent of the merged company,
while Sigma shareholders hold 14.25 percent. The three Chemist Warehouse
co-founders now collectively hold approximately $15 billion in shares, which
are locked in escrow until at least August 2025.
The company’s
first day of trading saw Sigma’s stock rise 5.4 percent to close at $2.91,
reflecting strong investor enthusiasm for the pharmacy giant’s market debut.
Expansion
Plans and Future Growth
Verrocchi has
outlined an ambitious plan for growth, with the merged business aiming to add
at least 400 more stores over the next five years. He also likened the merger
to a marriage, stating that discussions on rebranding Sigma’s pharmacy brands
under the Chemist Warehouse banner were still in the early stages.
“We’re saying
it’s like we’re getting married. But we can’t ask, ‘Where do you live, how much
money do you have in the bank?’ We can’t ask anything. So we’ll open up the
suitcase tomorrow,” he said.
Industry
Concerns and Regulatory Scrutiny
The merger
has raised concerns within the pharmacy sector, particularly from the Pharmacy
Guild of Australia, which fears reduced competition and potential price
increases for consumers.
“Such
consolidation has led to non-competitive duopolies and an unequal distribution
of healthcare services, ultimately reducing the presence of smaller, local
businesses,” the Guild said in a statement.
Despite these
concerns, the Australian Competition and Consumer Commission approved the deal,
paving the way for the creation of one of the largest pharmacy groups in the
country.
A
Long-Term Vision for Industry Leadership
With its ASX
listing complete, the company is positioning itself as a vertically integrated
retail and pharmaceutical giant, taking inspiration from UK health and beauty
retailer Boots.
“For the next
five years, I’ve chained myself to my desk,” Verrocchi said, reaffirming his
commitment to leading the company’s growth strategy.
Here is the link:
https://www.finnewsnetwork.com.au/archives/finance_news_network932088.html
Only one question. How is this not a
monopoly creating merger?
The ACCC thinks it is all OK:
Sigma and Chemist Warehouse proposed merger not opposed, subject to
undertaking
Date
7 November
2024
Topics
Mergers
The ACCC will
not oppose the Sigma Healthcare Limited (ASX: SIG) and CW Group Holdings
Limited (Chemist Warehouse) merger after accepting a court-enforceable
undertaking from Sigma.
Sigma is a
pharmacy wholesaler of prescription medicines, over the counter and front of
store products. Sigma is also a franchisor of pharmacies under banners
including ‘Amcal +’ and ‘Discount Drug Store’.
Chemist
Warehouse is a pharmacy franchisor and distributor to its own pharmacies and
retail stores under the brands ‘Chemist Warehouse’, ‘MyChemist’, ‘Ultra
Beauty’, ‘My Beauty Spot’ and ‘Optometrist Warehouse’.
“The ACCC
found that, with the undertaking, the proposed merger is unlikely to
substantially lessen competition. 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,” ACCC Chair Gina Cass-Gottlieb said.
“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.”
“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,” Ms Cass-Gottlieb said.
For reasons
including changes to the pharmacy regulatory environment, the ACCC also found
that a combined Sigma Chemist Warehouse is unlikely able to influence Sigma
banner pharmacies to the same extent Chemist Warehouse influences its current
franchisees. Sigma franchisees are expected to continue to make their own
individual commercial decisions.
“Critical to
our conclusion that a substantial lessening of competition is unlikely is the
competitive constraint provided by competing wholesalers including API, EBOS,
and CH2,” Ms Cass-Gottlieb said.
EBOS and API
are large national wholesalers supplying full product lines, and CH2 is a
smaller wholesaler that supplies both community pharmacies and the hospital
sector. Each of these wholesalers has agreements with the Commonwealth
Government to distribute PBS medicines as well as spare capacity to supply new
retail pharmacy customers.
The ACCC’s
investigation found that these wholesalers have actively competed for new
pharmacy customers and retail pharmacies have switched between wholesalers. The
undertaking given by Sigma will ensure that pharmacies currently engaged in
longer term contracts with Sigma will also be able to readily switch
wholesalers should they choose to do so, strengthening the competitive
constraint of these alternative wholesale supply options.
The ACCC
therefore formed the view that a combined Sigma Chemist Warehouse will be
unable to foreclose downstream pharmacies that compete with Chemist Warehouse
franchisees.
“We also gave
careful focus to the question of overall competition in pharmacy retailing and
concluded that the transaction is unlikely to result in a substantial lessening
of competition in any market,” Ms Cass-Gottlieb said.
“There are
numerous pharmacy retailers that will continue to provide meaningful and
ongoing competition to Chemist Warehouse and Sigma’s banner pharmacies as well
as non-pharmacy retailers that sell front-of-store products and some
over-the-counter products. The leading supermarkets are key providers of such
products and will continue to provide strong competition.”
For
prescription medicines, pricing will also continue to be regulated by the
Australian Government’s Pharmaceutical Benefits Scheme.
As part of
its review, the ACCC also considered whether the acquisition would impact the
supply of pharmacy retail products, including generic medicines.
The ACCC
found that there were multiple channels available to suppliers and
manufacturers of these 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.
“We received
many submissions from pharmacists and other market participants expressing
concerns about this transaction,” Ms Cass-Gottlieb said.
“We reviewed
the transaction very closely to test these concerns and conducted detailed
analysis of Chemist Warehouse and Sigma’s internal documents.”
“The evidence
gathered, augmented by the undertaking given by Sigma, led us to conclude that
a substantial lessening of competition is unlikely,” Ms Cass-Gottlieb
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.
More
information, including the undertaking can be found on the ACCC’s public
register here: Sigma
Healthcare - Chemist Warehouse Group
Notes to
editors
In
considering the proposed merger, the ACCC applies the legal test set out in
section 50 of the Competition and Consumer Act.
In general
terms, section 50 prohibits acquisitions that would have the effect, or be
likely to have the effect, of substantially lessening competition in any
market.
Here is the link (with lots of
details):
https://www.accc.gov.au/media-release/sigma-and-chemist-warehouse-proposed-merger-not-opposed-subject-to-undertaking
I guess we watch and wait and see!
David.