The Australian Competition and Consumer Commission will oppose the proposed merger between Australian Pharmaceutical Industries Limited and Sigma Company Limited, ACCC Chairman, Professor Allan Fels, said today.
API and Sigma are both involved in the manufacture, wholesale and distribution of pharmaceutical and healthcare products and the provision of support services to retail pharmacies, including the operation of retail pharmacy banner groups.
The proposal would result in a reduction of full-line pharmaceutical wholesalers from three to two. Together API and Sigma would account for approximately 60-70 per cent of products wholesaled to retail pharmacies.
The ACCC is concerned that the reduction of full-line wholesalers from three to two would result in a reduction in the quality of services provided to pharmacies and, consequently, to consumers. The ACCC is also concerned that the merger may lead to a reduction in the level of rebates that retail pharmacists receive.
The ACCC is concerned about the proposed merger because of:
- high barriers to entry (the high costs of entering the market and the marketing arrangements in place between pharmacies and wholesalers)
- the fact that retail pharmacies requiring a wide range of products need to use full-line pharmaceutical wholesalers
- the loss of an effective competitive force.
The ACCC conducted extensive market inquiries into the proposed acquisition, consulting with pharmaceutical wholesalers, pharmacists, pharmaceutical manufacturers, industry bodies and Government agencies. These inquiries raised substantial concerns about the impact of the proposed merger.
Market inquiries have revealed that pharmacists generally use full-line pharmaceutical wholesalers as primary suppliers. Other pharmaceutical wholesalers operate in niches but do not compete across the full range of products and cannot meet the full requirements of retail pharmacies.
Taking all of these factors into account, the ACCC considers that the proposed merger would be likely to result in a substantial lessening of competition, in contravention of section 50 of the Trade Practices Act 1974. Section 50 prohibits mergers and acquisitions that will have the effect, or are likely to have the effect, of substantially lessening competition in a market.