Shane Ponraj: In December last year, Sigma announced that it has agreed to acquire Chemist Warehouse for 700 million in cash and shares that would result in Chemist Warehouse shareholders owning 86% of the merged group. The deal would truly be transformational for Sigma if it goes through. You're basically combining Chemist Warehouse's retailing with Sigma's distribution infrastructure. What you get combined is a retail network of over 1,000 stores and 16 distribution centers. We think that lends massive competitive advantage in the form of buying power, economies of scale, and vertical integration. Sigma estimates annualized synergies of about 60 million, which is about 12% of current combined group EBIT.

Sigma here has mentioned a few points. Firstly, pharmacies that dispense medicine aren't actually company-owned. Secondly, if you expand the competitive landscape to include the likes of Woolworths and Coles, the market share wouldn't be as dominant. And lastly, in the results call last month, they just mentioned how they haven't seen many of their independent pharmacy customers switch provider after they've announced the deal.

So, the key question here is if ACCC will give this the green light, and we think there's still significant risk that it won't, and we do not yet factor in a merger in our base case. The ACCC has given a provisional date of June 13 to present its findings. But currently, in our view, we just think a merger would create such a formidable player in Australia's largest pharmacy retailer that it would raise concerns on competition and place tremendous pressure on independent pharmacies. There's also a real risk and likelihood of this creating adverse outcomes and access for patients. A similar reason was actually given by the ACCC when it blocked Healius and the ACL merger last year. While we haven't seen a mass exodus of customers leave Sigma, it is still reasonable to assume that if it does go ahead and it is given the green light, because Sigma is aligned with its biggest rival Chemist Warehouse, that many of these customers will choose not to source supply from Sigma anymore. And while pharmacies that dispense medicine aren't company-owned, greater corporatization in the space is concerning given that there's still some level of control on locations, for example.

We think the deal is largely priced in now. So, at current levels, we don't see significant upside to gain if it does go through, but significant downside if it doesn't go through. We essentially here agree with the Pharmacy Guild of Australia that there's enough questions and concerns here to give investors pause. The review process by the ACCC itself has been quite lengthy and extensive, and that just shows that this is not straightforward and quite a complex transaction. And just recently, we saw a large move in Sigma's share price with Sigma's largest shareholder HMC reducing its ownership to 15% from 19%. So, it's sold quite a large chunk there, which we think highlights the inherent risk of completion ahead of the ACCC ruling.