Why did the ACCC approve the Chemist Warehouse merger with Sigma Healthcare?

Australia's pharmacy sector is set to experience its largest shake-up in decades, with Chemist Warehouse joining forces with Sigma Healthcare to create a multi-billion-dollar pharmaceutical company.

Sigma owns the retail pharmacy brands of Amcal, Guardian, PharmaSave and Discount Drug Stores, and has 400 of those stores dotted around the country.Discount pharmacy retailer Chemist Warehouse will be allowed to merge with Sigma Healthcare to create an $8.8 billion pharmaceutical giant after being approved by Australia's competition regulator.

Given how many pharmacies it supplies, distribution is a big part of Sigma's business and operates nine distribution centres across the country. Another 15 to 20 per cent of those stores are small-to-medium brands , while the remaining 40 to 45 per cent of stores belong to the largest five groups.By combining Chemist Warehouse and Sigma, the two will have around 950 stores or roughly 16 per cent of the total number of pharmacies in the country.

Specifically, the ACCC was worried that Sigma would jack up the wholesale prices of its products that it supplies to other pharmacies and force them to pay the higher prices because they have long-term contracts. Another factor that worked in the merger's favour was the presence of competing pharmaceutical wholesalers, including EBOS, API and CH2 — all of which have their own agreements with the federal government to distribute PBS medications and extra capacity to supply other retail pharmacies.That was certainly a concern for the ACCC, and that was reflected in some of the submissions it received from various stakeholders and members of the public as it was weighing up its decision.

"Reduced competition ultimately leads to higher prices for patients and lower service standards," a spokesperson said.

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