The Sigma Healthcare Ltd (ASX: SIG) share price has plunged more than 6% in morning trade on Thursday following news that the Australian Competition and Consumer Commission (ACCC) has raised concerns over its proposed merger with Chemist Warehouse.
Sigma's planned merger with the chemist giant — to be structured as a reverse takeover — has been the subject of ongoing debate since it was announced in December last year.
The Sigma share price has rallied some 50% since then, even with a pullback over the last three months. Here are the details of the ACCC's response and what it means for investors.
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Sigma Healthcare share price slides as ACCC speaks
Today, the ACCC announced its "preliminary concerns" over the proposed transaction. Investors have reacted swiftly, sending the Sigma share price down sharply in early trade.
According to ACCC commissioner Stephen Ridgeway, the merger represents a major structural change for the pharmacy sector.
He noted the competitive threat to independent pharmacies that might be caused by "the largest pharmacy chain by revenue merging with a key wholesaler".
We have identified a range of preliminary competition concerns, including at the retail level and as a result of the proposed integration of the merged firm across the wholesale and retail level. We want to hear from interested parties, including rival pharmacies as we continue this review.
The ACCC's other primary concern was that the merged entity would become "uniquely vertically integrated". That means the new entity would own its entire supply chain.
This could potentially raise barriers for rivals entering or expanding in the market, leading to higher prices and reduced service quality for consumers.
Even still, the ACCC said its focus was on the acquisition's impact on competition rather than the pros or cons of different business models.
"The key issue is whether or not the proposed acquisition weakens competition in the supply of pharmaceutical products," the ACCC said.
What this means for the Sigma share price we will have to wait and see.
Details of Sigma and Chemist Warehouse merger
Sigma Healthcare is one of the largest wholesalers of prescription medicines in Australia. It also operates as a franchisor of pharmacies. Brands on its books include Amcal +, Discount Drug Stores, PharmaSave, and Guardian.
Chemist Warehouse, on the other hand, is a franchisor and wholesaler.
News of the deal sent the Sigma share price soaring last year.
The proposed acquisition would see Chemist Warehouse shareholders hold a majority 85.75% stake in the newly-listed ASX entity. Sigma shareholders would hold the remaining 14.25%.
The ACCC has not yet concluded the potential competitive impact of the merger. But it has called for submissions from interested parties by June 27 to gather further insights.
The Sigma share price is up nearly 13% this year to date, and has climbed 37% into the green the past 12 months. It reached a 52-week closing high of $1.31 in April.
