Sigma share price dives 6% on Chemist Warehouse merger hurdle

The proposed merger faces ACCC concerns.

| More on:
A female scientist sits at her desk looking stressed out while working in an AnteoTech lab.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

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.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Healthcare Shares

Woman looks amazed and shocked as she looks at her laptop.
Healthcare Shares

If you invested $5,000 in this ASX pharmaceuticals stock a year ago, you'd have $34,711 now!

Just how lucky have investors been with this stock?

Read more »

A doctor or medical expert in COVID protection adjusts her glasses, indicating growth or strong share price movement in ASX medical, biotech and health companies
Healthcare Shares

Should I buy CSL shares now for their 'steadily growing' dividends?

CSL has increased its interim and final dividend payouts for four years running now.

Read more »

Shot of a young scientist using a digital tablet while working in a lab.
Healthcare Shares

Guess which ASX healthcare stock is surging on big FDA news

The update is a critical milestone for the company.

Read more »

Scientist looking at a laptop thinking about the share price performance.
Healthcare Shares

Up 308% in 6 months, why is the Mesoblast share price tumbling today?

The Mesoblast share price is taking a tumble on Monday. But why?

Read more »

Three Archer Materials scientists wearing white coats and blue gloves dance together in their lab after making a discovery
Healthcare Shares

This ASX 200 med-tech stock has no debt, pays dividends and is growing at 30% per year!

This stock is delivering very healthy growth.

Read more »

a woman and a man sleep side by side with the woman placing a hand on the man's chest while he wears a sleep breathing machine.
Healthcare Shares

Do weight loss drugs pose a threat to ResMed shares?

It's a question being asked amongst investor circles in 2024.

Read more »

A young woman with her mouth open and her hands out showing surprise and delight as uranium share prices skyrocket
Healthcare Shares

Buy this high-flying ASX healthcare stock for market-beating returns

Bell Potter thinks this top stock could keep rising from where it trades today.

Read more »

Happy, tablet or doctor in a laboratory with research results or positive feedback after medical data analysis. Smile, vaccine or healthcare worker reading or working on futuristic science innovation.
Healthcare Shares

Telix share price hits record high on strong quarter and guidance upgrade

This market darling has continued to deliver stunning top line growth.

Read more »