In key news on Australian stocks, shares of Sigma Healthcare (AU:SIG) fell about 4% after the Australian Competition and Consumer Commission (ACCC) raised concerns about the impact of the company’s proposed merger with the Chemist Warehouse Group (CWG). The AU$8.8 billion deal, which could create Australia’s largest pharmacy chain, was initially announced in December 2023.
Australia-based Sigma Healthcare is a wholesaler and distributor of pharmaceuticals and other related products. Meanwhile, Chemist Warehouse operates a chain of retail pharmacies.
Sigma Healthcare-Chemist Warehouse Merger Sparks Concerns
The ACCC is concerned that the merger of Sigma Healthcare with Chemist Warehouse will result in the integration of the two businesses across the wholesale and retail channels, limiting competition in many markets.
The regulator thinks that other pharmacies might face higher costs if the merger goes through and thus become less competitive. The deal could also result in consumers paying higher prices and impact the quality of goods and services.
In a statement, ACCC commissioner Stephen Ridgeway called the deal a “major structural change” for the pharmacy sector, as it involves leading pharmacy chain Chemist Warehouse and Sigma, which is a major wholesaler to several independent pharmacies. The ACCC is concerned that the deal could impact supplies to non-Chemist Warehouse stores. It also noted that the combined company will have access to sensitive data of Chemist Warehouse’s rival pharmacy chains.
The ACCC’s final decision on the deal is due on September 5. Meanwhile, Sigma CEO Vikesh Ramsunder said that the company is cooperating with the regulatory authority. He is optimistic that the company will abide by its regulatory obligations and “can continue to serve franchisee and independent pharmacies alike with a competitive offering,” if the deal goes ahead.
Is Sigma Healthcare a Good Stock to Buy?
With three Holds and two Sells, SIG stock has a Moderate Sell consensus rating on TipRanks. The average Sigma Healthcare share price target of AU$1.02 implies nearly 15% downside potential.
