Zaida Glibanovic and Stefan Bradley
Those recognisable blue, red and yellow colours of the super discount pharmaceutical giant Chemist Warehouse will be ever more omnipresent as the company merges with Sigma Healthcare, a move set to be worth more than $8.8 billion if cleared by regulators.
On the morning of Monday, December 11, it was announced that the parent company of Chemist Warehouse, CW Group Holdings, were to enter a merger agreement with Sigma after a long period of rumours and offers from other companies.
This deal is a stark contrast to the company’s humble beginnings in 1972 on Melbourne streets.
The deal would see Chemist Warehouse, alongside Sigma Health, become Australia’s leading healthcare distributor and retail pharmacy and one of the biggest traded companies on the Australian Securities Exchange (ASX).
In total, around 800 pharmacies across Australia are operated by Sigma, with the company also owning its own private branded items, including cold and flu tablets and throat lozenges.
The brands Amcal, Discount Drug Stores, Guardian, and PharmaSave are owned by Sigma Healthcare.
Raymond Street Pharmacy owner Keith Kwan doesn’t believe prices or competition will change much if the merger goes through.
“There’s pretty much a Chemist Warehouse in every town already,” he said.
“People who come to us don’t come for the price, they come for the service.”
He also points out that Chemist Warehouse Sale and Findlay & Weymouth (part of Amcal) are already very close to each other.
“Some people don’t want to shop at Chemist Warehouse, so if (Amcal) becomes a Chemist Warehouse, that might benefit us.”
Sigma has indicated that all branded stores such as Amcal will stay the same, and remain separate from Chemist Warehouse.
As a result of the agreement, the group will own more than 1000 stores, including 54 overseas locations in China, Ireland, and New Zealand.
The critical part of the merger is that Sigma also operates nine distribution centres across Australia, owning the rights to three of the nine outright.
The merger with Sigma will give the company a market capitalisation like no other – with control of the whole process from making the products to the shelves.
Chemist Warehouse and Sigma Healthcare are set to have a combined 16 distribution centres in Australia and New Zealand once the merger goes through.
Nic Balfour runs the Findlay and Weymouth Pharmacy and is a partner at Balfour’s Pharmacy, both in Sale. The stores are franchises of the Amcal brand, but Mr Balfour has ownership and control of them.
“It is early days and more detail on what it means for franchisee Amcal pharmacies will become clear over time. We have been reassured by Sigma’s chief executive that the Amcal brand will be stronger as a result of this announcement, with further investment and development in the brand planned. The merger still has to clear regulatory hurdles with ACCC,” Mr Balfour said.
“The important point here is that each Amcal is independently owned and the law states that you have to be a pharmacist to own a pharmacy. Our pharmacies are 100 per cent locally owned and operated. We are happy with the Amcal brand and the high service model it delivers currently.
“Amcal has a strong, trusted and longstanding presence in the Gippsland region.”
It’s understood that branding will remain with the three tiers of pharmacy: the big discount Chemist Warehouse, the fully serviced Amcal and the Discount Drug Stores.
Mr Balfour also notes that under this potential merger, Sigma can’t give preferential supply of wholesale pharmacy products to their own brands, as that would be a breach of the Community Service Obligation (CSO).
The CSO provides government funding to pharmaceutical wholesalers and ensures that there’s a level playing field for all pharmacies when they’re getting supply.
It aims to ensure all pharmacies and Australians can access PBS medicine in a timely manner regardless of their location.
The Australian Competition and Consumer Commission (ACCC), the Federal Court to ensure compliance with the Corporations Act, Chemist Warehouse’s shareholders, and investors in Sigma Healthcare must all approve the deal. If approved, the merger is set to be completed in the second half of 2024.
Additionally, given that Chemist Warehouse has 42 stores across the Tasman in New Zealand, approval from New Zealand’s Overseas Investment Office (OIO) may also be required.
The merger will be presented to Sigma’s shareholders for approval if it passes those regulatory barriers, which calls for a vote of at least 75 per cent of them.
Chemist Warehouse has the My Chemist brand and Ultra Beauty under their wing alongside part ownership in brands including Bondi Protein Co, Goat Soap and the Wagner supplement brand, to name a few.
It is speculated that Chemist Warehouse product sales in the first year of the contract could generate $3 billion in revenue.
Not everyone is excited about the merger, with The Pharmacy Guild of Australia saying the move might pose significant question and risks.
“These questions and risks relate to patient care, community pharmacy ownership, competition, and the future of CSO wholesaling which Commonwealth, State and Territory Governments together with regulators, like the Australian Competition and Consumer Commission (ACCC), need to urgently consider and address,” they said.
“For many decades, the community pharmacy model has guaranteed patients access to vital and life-saving medications without putting profit over patient care.
The Pharmacy Guild reiterated that “Medicines are not ordinary items of commerce”.
“We recognise, with the appropriate regulatory oversight, that franchising can and does legitimately and conveniently support many community pharmacies providing health and other services to their patients,” the statement read.
“Regulators must however be wary of increased corporatisation in the community pharmacy sector, and carefully scrutinise complex business models for compliance with community pharmacy ownership laws – laws designed to ensure that only pharmacists own, operate and control community pharmacies are in the best interest of patients.”
