Two of Australia’s largest pharmacy groups unveiled a proposed $2 billion dollar merger yesterday, in a move that could secure nearly 10% of all Australian pharmacies under one group.
EBOS Group Limited, which owns pharmacy group Chemmart, said on Thursday it intends to sell Chemmart to the Terry White Group (TWG). The completion of the deal is still subject to TWG shareholder approval, but if it proceeds, it would see 500 pharmacies under the banner group with approximately $2 billion in combined turnover.
In exchange for Chemmart’s business assets, EBOS will invest further capital in order to receive 50% equity in the merged entity. The merger will be proposed at an extraordinary general meeting of TWG’s shareholders, planned for late September.
As reported by Fairfax, TWG is deliberating on an initial public offering IPO, after the proposed merger, with TWG chief executive Anthony White saying “it’s probably 12 months away if we were to do it at the earliest but it could go into 2018”.
“In the next six months we’ll be focused on integration and getting the two businesses bedded down,” White said.
“But we have signalled previously we are looking at delivering better liquidity to our shareholders.”
The merger would see TWG become the third largest retail pharmacy group, coming in behind Chemist Warehouse and Sigma Pharmaceuticals, according to research from IBISWorld.
In a statement, EBOS chief executive Patrick Davies said the planned merger would “provide both immediate and long term benefits through building the strongest retail pharmacy network in Australia”.
“The pharmacy industry is positioned for growth with Australia’s ageing population and positive community attitudes towards health and wellbeing,” he said.
“This is another important step in our strategy to position EBOS Group for further growth in retail pharmacy in Australia.”
Davies will be joining the TWG directors on the board of the merged entity, if the deal goes ahead.
What the planned merger means for the pharmacy industry
David Quilty, executive director of the Pharmacy Guild of Australia, told SmartCompany the proposed merger “shouldn’t have much of an impact” on smaller pharmacies.
“The merger is of two banner groups, which mostly just regulate the look and feel of the stores and provide buying power,” Quilty says.
“The stores are all owned by individual pharmacists, there were over 200 individually owned pharmacies in the Terry White group alone.”
Quilty says this move will provide “considerably” more buying power for pharmacies under the banner groups, given EBOS is one of the major three pharmaceuticals wholesalers after its acquisition of Symbion in 2013.
A July 2016 report by market research firm IBISWorld shows smaller banner groups and independent pharmacists hold 34% of the pharmaceutical retail market share.
Quilty says these smaller pharmacies shouldn’t be worried about the merger as it’s not possible for a TWG pharmacy to establish itself near an existing pharmacy due to the Australian Community Pharmacy Authority’s Pharmacy Location Rules.
These rules establish certain location-based criteria that must be met for an approval of a new pharmaceutical store.
“There won’t be any impact on the viability of smaller pharmacies, they won’t be seeing a Terry White store pop up nearby,” Quilty said.
“This merger won’t have any impact on smaller businesses that I can identify.”
“Overall this merger is good for consumers, good for the public, and good for PBS medicine.”