On Thursday morning, the Australian Competition and Consumer Commission flagged a set of “concerns” it holds over the proposed $8.8bn merger of ASX-listed Sigma Healthcare with Chemist Warehouse Group, Australia’s largest pharmacy retailer with about 600 stores across the country.

“This is a major structural change for the pharmacy sector, involving the largest pharmacy chain by revenue merging with a key wholesaler to thousands of independent pharmacies that in turn compete against Chemist Warehouse,” ACCC Commissioner Stephen Ridgeway said.

“We have identified a range of preliminary competition concerns, including at the retail level and as a result of the proposed integration of the merged firm across the wholesale and retail level. We want to hear from interested parties, including rival pharmacies as we continue this review.”

Sigma is a wholesaler and distributor of prescription medicines with a nearly $2bn market capitalisation.

Under the transaction, Sigma would acquire all the shares in Chemist Warehouse in exchange for Sigma shares and a $700m cash consideration, the ACCC said.

Upon completion of the proposed merger, Chemist Warehouse shareholders will hold 85.75 per cent of the ASX-listed merged entity while Sigma shareholders will hold 14.25 per cent.

“The transaction would create a merged company that is uniquely vertically integrated across multiple levels of the pharmacy supply chain. This new business model for the pharmacy sector could raise barriers to rivals expanding or entering, which may lessen competition,” Mr Ridgeway said.

“The ACCC has heard many concerns about the impact Chemist Warehouse has had on the pharmacy sector. However, the ACCC is focused only on the impacts of the acquisition on competition, rather than the pros or cons of different business models. The key issue is whether or not the proposed acquisition weakens competition in the supply of pharmaceutical products.”

The ACCC said it was concerned the proposed acquisition could harm pharmacies currently supplied by Sigma, leading to a substantial lessening of competition in pharmacy retailing.

Currently, Sigma is incentivised to maximise wholesale sales, but after the transaction, the independent pharmacies it supplies will also be competitors to Chemist Warehouse, the ACCC added.

The watchdog also said it was concerned the merger could enable Chemist Warehouse “to access and use commercially sensitive data relating to pharmacies supplied by Sigma, in a way that damages competition”.

“Following the acquisition, the merged company may be able to use insights from data obtained to target pharmacies that rival Chemist Warehouse or pre-empt and undermine them,” Mr Ridgeway said.

The ACCC said it had not reached a concluded view on any of the above issues.

In a statement to the ASX on Thursday morning, Sigma said the ACCC’s statement was not “unexpected”.

“Sigma and Chemist Warehouse Group consider there are good arguments why the proposed merger will not lessen competition and will continue to engage with the ACCC to address its preliminary views and any potential concerns,” the company said.

Sigma CEO Vikesh Ramsunder said the company was co-operating with the ACCC in the merger review.

Chemist Warehouse has been contacted for comment.

Chemist Warehouse is a private company with the Chemist Warehouse, MyChemist, Ultra Beauty, My Beauty Spot and Optometrist Warehouse brands.

The company also operates six distribution centres providing products to its franchisees.

Sigma pharmacy brands include Amcal +, Discount Drug Stores and Guardian.

The ACCC will accept submissions on the merger from interested parties until June 27, 2024.