The move by struggling Sigma Pharmaceuticals to sell its main generic drugs business to Aspen Pharmacare of South Africa may have hit a competition roadblock.
The Australian Competition and Consumer Commission yesterday issued a Statement of Issues on the proposed acquisition of Sigma’s Pharmaceutical Division by Aspen.
The ACCC has outlined a number of drugs where both companies produce similar products, and suggested that the 19% stake in Aspen held by GSK, one of the world’s biggest Pharmaceutical groups, could pose competition problems.
The news didn’t impact the Sigma share price which eased half a cent at the end of the day when investors started becoming aware of the detail in the Commission’s announcement. The shares had been up a cent before that to 47c.
Investors were slow to notice the detail of the lengthy statement which the Commission said had seen it seek further information on certain competition issues which arose from market inquiries to date.
Sigma Pharmaceuticals agreed to sell its pharmaceuticals division to Aspen Pharmacare Holdings Ltd for $900 million and last week gave an extension to Aspen for more time to complete the deal.
The Commission’s intervention now means the deal won’t close until late next month at the earliest.
Sigma’s pharmaceuticals division includes Sigma’s generics, consumer, over the counter, Herron, ethical products, medical products, Orphan and manufacturing businesses.
Sigma would retain its healthcare division, which includes the wholesale and retail businesses under the proposed term.
The ACCC said on Wednesday that its final decision would be deferred until November 25, 2010.
"The ACCC invites further submissions from the market in response to the Statement of Issues by 11 November 2010. As a result, the ACCC’s final decision will be deferred until 25 November 2010.
"The ACCC intends to publicly announce its final view by 25 November 2010. However the anticipated timeline may change in line with the Merger Review Process Guidelines," the Commission said.
The Commission said "Aspen and SPD both supply pharmaceutical products that are prescribed and sold in community pharmacies and used in hospitals throughout Australia.
"The operations of Aspen and SPD directly overlap in the supply of a number of generic drugs.
"The parties’ operations also overlap in the supply of drugs falling within a number of broad therapeutic areas.
"In assessing a merger pursuant to section 50 of the Trade Practices Act 1974 (Cth) the ACCC must consider the effects of the transaction by comparing the likely competitive environment post-acquisition if the transaction proceeds (i.e. the "with" position) to the likely competitive environment if the transaction does not proceed (i.e. the "without" or "counterfactual" position) to determine whether the proposed acquisition is likely to substantially lessen competition in any market.
"The ACCC’s preliminary view is that the most likely counterfactual would involve Sigma retaining SPD, although the ACCC recognises that Sigma may be required to sell various assets, potentially within the SPD business and/or raise funds to reduce its debt levels."
The Commission then identified a number of markets for individual drugs where it saw problems and the GSK stake in Aspen.
"Market inquiries indicate that there is currently minimal overlap between the operations of Aspen and GSK (currently a 19% shareholder in Aspen) but following the proposed acquisition of SPD, the merged firm’s and GSK’s operations would overlap in a number of different product areas.
"Given GSK’s 19% shareholding in Aspen, the ACCC is concerned has some concerns that coordinated effects may be facilitated by the flow of information from Aspen to GSK and that competition between the merged firm and GSK may be ‘muted’ in those markets where there is an overlap between products supplied by the merged firm and products supplied by GSK.
"There appear to be a number of characteristics of pharmaceutical markets which may be conducive to coordinated conduct post-acquisition between the merged firm and GSK."
