Sigma Healthcares AU$8.8 Billion Merger with Chemist Warehouse Moves Forward

Highlights:

• Sigma Healthcare (ASX: SIG) has moved closer to its AU$8.8 billion merger with Chemist Warehouse, offering an exit path for franchisees to address ACCC competition concerns.
• Sigma's market capitalization surged by 23%, reaching an 18-year high, as investors anticipate ACCC approval without the need for store divestitures.
• The ACCC has delayed its decision until November 7, 2024, seeking feedback on Sigma's proposal to allow franchisees to leave the group without penalties and safeguard sensitive data.

Sigma Healthcare (ASX: SIG) is closer to finalizing its $8.8 billion merger with Chemist Warehouse after offering a strategic concession to its franchisees. The company has agreed to provide an exit path for hundreds of pharmacies if the deal proceeds, in response to competition concerns raised by the Australian Competition and Consumer Commission (ACCC).

Market Reaction and ACCC Delays Decision

At the time of writing, Sigma’s stock surged by 23%, reaching an 18-year high, adding nearly $1 billion to its market capitalization. This rally indicates investor optimism that the ACCC may approve the merger without requiring Sigma to sell off stores. However, the ACCC delayed its ruling again until November 7, 2024, to allow time for a public consultation on Sigma’s proposed remedy. The company has pledged to allow franchisees from brands like Amcal and Guardian to leave the group without penalties, provided they joined before January 1, 2024. It also committed to safeguarding sensitive data from Sigma staff involved in the merger with Chemist Warehouse.

Addressing Competition Concerns

The ACCC is still examining the potential impact of the merger on smaller pharmacies supplied by Sigma, raising concerns about increased prices and market consolidation. Sigma continues to cooperate with the regulator and has reaffirmed its commitment to the government’s community service program, ensuring it supplies essential medicines to independent chemists across Australia.

The merger, which would see Chemist Warehouse shareholders controlling 85.8% of the new entity, is set to combine Sigma’s wholesale operations with Chemist Warehouse’s 900 retail outlets. The deal, expected to include $700 million in cash and Sigma shares, would significantly reshape the Australian pharmacy landscape.

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