👉 Background: Over the past 20 years, Chemist Warehouse has grown into an absolute behemoth -  with over 500 pharmacies and 20,000 employees across Australia, New Zealand and even China.

👉 What happened: In December last year, Chemist Warehouse announced it would merge through an $8.8 billion reverse takeover with Sigma Healthcare, a wholesaler that supplies drugs to small and large pharmacies including to its own Amcal Pharmacies and Discount Drug Stores.

👉 What else: Now, the ACCC has warned that this merger would “substantially lessen competition in the pharmacy retailing space”. With both the wholesale and retail arms, the merged group would extend its vertical integration and its influence across the industry.

What's the key learning?

💡The greater the vertical integration, the greater chance of being anti-competitive. And the Sigma & Chemist Warehouse merger is a textbook example of vertical integration.

💡 Sigma, the wholesaler, sells drugs to Chemist Warehouse as well as other smaller, independent pharmacies. While owning Sigma will help streamline Chemist Warehouse's operations, it could also help increase market control, which can raise big red flags with regulators.

💡But Chemist Warehouse argues that since 70% of its revenue comes from front-of-house items like sunscreen, toothbrushes and perfumes, it actually competes with Coles and Woolies…rather than small pharmacies. This ain't the last you'll hear about this battle between CW and ACCC.