Celesio may have to sell pharmacies in 13 areas of England and Wales for its takeover of Sainsbury’s pharmacies business to get the go-ahead.
Celesio AG (Celesio), through its subsidiary Lloyds Pharmacy Limited (Lloyds), operates around 1,540 pharmacies across the UK. It intends to acquire 277 Sainsbury’s pharmacy stores, which are generally within or next to Sainsbury’s supermarkets.
The Competition and Markets Authority (CMA) referred the case for a phase 2 investigation in December 2015. In a summary of their provisional findings, the inquiry group of independent panel members investigating the merger has identified 13 areas in England and Wales where the two companies’ pharmacies are such close competitors that the merger would be expected to lead to a substantial lessening of competition (SLC).
As well as the summary of provisional findings, a notice of possible remedies has also been published which outlines ways to address the competition concerns, including the sale of pharmacies in the affected areas.
Simon Polito, Inquiry Chair, said, ‘This is a market in which the scope for competition is reduced compared with many retail mergers. The price of prescription medicines is fixed and there are a number of quality specifications which cannot be reduced below a minimum level because of regulation. However, we found that since pharmacies’ total revenue is largely dependent on the number of prescriptions issued, pharmacies have an incentive to compete to try to attract additional customers.
‘Consumers value various aspects of service quality and are likely to take these into account when choosing between pharmacies. This gives pharmacies the incentive to compete on these aspects in order to attract customers. We found evidence that there were some differences in the characteristics of Sainsbury’s and Lloyds pharmacy customers but we also found that customers would be willing to switch between Lloyds and Sainsbury’s pharmacies, particularly where the number of convenient competitor pharmacies was low.
‘We have provisionally found that after the merger Lloyds will no longer face sufficient competition in 13 areas and expect that in these areas customers will lose out. We are now inviting responses to these provisional findings and will discuss ways in which we can address our concerns.’
