ACCC Outlines Competition Concerns for Sigma’s Deal With Chemist Warehouse

We maintain our AUD 0.78 fair value estimate for no-moat Sigma Healthcare and our AUD 28.50 (NZD 30.50) fair value estimate for narrow-moat Ebos. Due to the significant risk of regulatory resistance, we still do not factor Sigma’s potential acquisition of Chemist Warehouse in our base case. This would markedly increase competition for Ebos and be a major structural change for the pharmacy sector. The Australian Competition and Consumer Commission could have given the green light for the deal but instead provided a Statement of Issues outlining preliminary competition concerns at both the retail and wholesale level. Due to the potential merged group being uniquely vertically integrated, the ACCC thinks it could raise barriers to rivals expanding or entering, which may lessen competition. The deal is conditional upon receiving regulatory approval, and our fair value estimate for Sigma implies roughly 30% downside to the current share price. The ACCC will continue its review before a final decision is expected on Sept. 5, 2024.