Metcash has withdrawn its offer for Symbion Pharmacy Services after the competition regulator indicated that it had some important concerns about the deal.
The decision was announced after the Commission revealed its concerns at the involvement of Sigma Pharmaceuticals in a joint venture to run the Symbion business. That was to be set up after the Metcash acquisition.
The Commission however said it had no concerns about Metcash.
It said its "preliminary view that the acquisition of Symbion Pharmacy of itself is unlikely to raise competition issues since Metcash currently has no involvement in the pharmaceutical industry".
But it cast doubt on whether Metcash can buy Symbion Pharmacy Services from Primary Health Care and then form a joint venture with Sigma Pharmaceuticals to run the business.
In a statement to the ASX late yesterday Metcash CEO, Andrew Reitzer revealed the decision to withdraw, and cast doubt on the value of the Symbion assets:
“This decision by the ACCC as well as the results of our detailed due diligence on the Symbion pharmaceutical wholesaling business have caused us to conclude that the value of this business to Metcash is substantially less than the price which we believe would be acceptable to the vendors.
"As a consequence, Metcash is withdrawing from the sale process and will not be submitting a final bid. We will therefore also be unable to pursue the proposed logistics/buying joint venture with Sigma Pharmaceuticals.
“We recognise that, by withdrawing from the process, we will not presently be able to bring our buying, logistical and marketing expertise to the pharmaceutical wholesaling industry and assist the growth and development of independent pharmacists in the same way that we have strengthened and grown independent grocery retailing in Australia.”
The Metcash announcement is understood when the joint venture is analysed by the Commission in a Statement of Issues paper released with a statement yesterday.
It’s plain that the involvement of Sigma in the joint venture after the purchase was going to cause problems with the Commission.
This made clear in the issues paper. The Commission sees significant problems with Sigma’s involvement in the joint venture.
We have already seen Terry White Chemists, a pharmacy banner supported by Symbion Pharmacy Services, reveal its opposition to Metcash’s involvement.
The ACCC said in its statement yesterday that it was calling for comment on the proposed acquisition by Metcash Trading Limited of Symbion Pharmacy Services Pty Limited and the proposed joint venture between Metcash Trading Limited and Sigma Pharmaceuticals Limited.
The Statement of issues identifies a number of preliminary concerns the ACCC has in relation to the proposal and seeks further information on certain issues which have arisen from the ACCC’s market inquiries to date.
The ACCC said it was inviting further submissions from the market by July 23. "To allow for submissions in response to the Statement of issues, the ACCC’s final decision date will be deferred until 13 August 2008."
That will no longer be needed.
The Commission’s list of concerns and the accompanying explanation makes it hard to see how anyone with an existing involvement in the industry (distribution especially), could get ACCC approval to buy Symbion.
Metcash was a relative ‘cleanskin’ in that it had no involvement. Sigma had considerable involvement and yet the Symbion business does need a company with experience and knowledge of what pharmacies want, and how they want to be serviced (daily, and sometimes, twice a day with small drops).
The commission said that Metcash and Sigma had sought informal clearance for the following transactions:
"Metcash’s proposed acquisition of Symbion Pharmacy and on or as soon as practicable after, completion of the Metcash’s acquisition of Symbion Pharmacy, Sigma and Metcash intend to establish a joint venture that will provide procurement, distribution and related services to each of them in respect of their pharmaceutical wholesaling businesses. The JV company will acquire from Sigma and Metcash relevant assets to enable it to provide the procurement, distribution and related services.
"The parties submit that Sigma and Metcash will each separately retain and continue to operate the sales and marketing functions through which they supply products to and support their pharmacy customers and will continue to compete in respect of those operations.
"Metcash will be engaged by the JV company to oversee the procurement function."
The ACCC said it had identified a number of areas of possible problems, the first being:
"(The) reduction in competition due to the upstream aggregation– supply of wholesale pharmacy products and services to pharmacies." "As indicated earlier, Sigma and Metcash submit that they will each separately retain their sales and marketing functions, and will continue to compete against each other for the supply of products and support services to pharmacies.
"Market inquiries generally revealed concerns that the proposal would have the effect of reducing the number of effective, independent full line wholesale competitors in the market from three to two and that this would result in pharmacies paying higher prices for all pharmacy products (including pharmacy medicines and general products).
"The ACCC is concerned that the upstream joint venture arrangements will diminish the incentives for Sigma and Symbion (owned by Metcash) to compete downstream for pharmacy customers.
"This is because under the joint venture structure the benefits accruing to Sigma or Metcash from successfully winning customers from each other may not be as great as they would be in the absen
