Sigma Healthcare shares drop as ACCC waves red flag over Chemist Warehouse ASX listing

Chemist Warehouse’s hotly anticipated landing on the ASX – by reverse listing via Sigma Healthcare (ASX:SIG) – has fallen foul of the Australian Competition and Consumer Commission (ACCC).

Sigma Healthcare shares, in turn, were down -5.4% in the second hour of Thursday trade.

The market competition regulator has cited its concerns that pharmacies supplied by Sigma, currently competing with Chemist Warehouse, could lose out when Chemist Warehouse ultimately ‘takes over’ the company.

Sigma Healthcare’s network of distribution infrastructure across Australia was ultimately the reason Chemist Warehouse chose that company for a reverse listing.

But as far as the ACCC sees it, Australia’s commercial pharmacy landscape would be subject to “major structural change” if the deal goes ahead in its current form.

“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,” ACCC Commissioner Stephen Ridgeway said.

“The transaction would create a merged company that is uniquely vertically integrated across multiple levels of the pharmacy supply chain,” he added, ultimately highlighting it could give Chemist Warehouse too much power in the pharmacy sector.

Chemist Warehouse is a franchisor of pharmacies and retail stores while Sigma is among the largest wholesalers of medications in Australia, both over the counter (OTC) and front of store.

The reverse listing process is, on the face of it, counterintuitive. Sigma will be buying all the shares in Chemist Warehouse in exchange for Sigma shares and $700M in cash. But at the end of this process, Sigma is widely tipped to “become” Chemist Warehouse on the ASX.

Chemist Warehouse shareholders, at that stage, will own 85.75% of Sigma – the key mechanism by which the former is ‘listing’ on the ASX.

When news broke of Chemist Warehouse’s intentions to list, it was big news, and remains one of the most hotly anticipated events on the ASX in 2024 (despite there being no traditional IPO.) However, many have wondered where, exactly, the ACCC would land on the decision.

As predicted by more than one commentator, the regulator has its concerns. That’s its job, after all. The ACCC is extending an ongoing review behind the plan and seeking consultation from relevant members of the community, with a focus on pharmacies competing with Chemist Warehouse.

SIG last traded at $1.14.

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