Competition – press release

Pharmacy merger faces in-depth investigation

Celesio’s anticipated acquisition of Sainsbury’s pharmacy business faces being referred for an in-depth investigation by the CMA.

Celesio AG (Celesio), through its subsidiary Lloyds Pharmacy Limited (Lloyds), operates 1,542 pharmacies across the UK, whilst Sainsbury’s owns 277 pharmacy stores, generally within or next to existing Sainsbury’s supermarkets.

Although the price of prescription medicines is regulated, pharmacies largely compete on a range of quality and service factors - such as opening and waiting times, quality of advice, availability of medicines and additional services.

The Competition and Markets Authority’s (CMA) initial investigation has identified 78 local areas where customers may be affected by a loss of competition between Lloyds and Sainsbury’s pharmacies. It has also indicated that in other local areas it has been unable to reach a positive conclusion on whether the merger gives rise to a realistic prospect of a substantial lessening of competition.

The merger will therefore be referred for an in-depth phase 2 investigation by an independent group of CMA panel members.

Sheldon Mills, CMA Senior Director of Mergers and decision-maker in this case, said:

The majority of consumers in the UK need to use pharmacies at one time or another and they evidently provide an important service. At a local level, pharmacies compete on a range of factors that are important to customers such as availability of medicines, waiting and opening times and the quality of advice.

After the merger, Lloyds will no longer face competition in certain local areas from one of its rivals and following our initial investigation we are concerned that this might affect choice, quality and service for customers.

We think a detailed investigation is needed to look at these concerns.

Notes for editors

  1. The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law.
  2. This merger has a community dimension within the meaning of the European Commission (EC) Merger Regulation and, therefore, was within the jurisdiction of the EC. On 20 March 2015, after a request from the merging parties, the EC decided to refer the merger in its entirety to be examined by the CMA.
  3. The Reference Test: under the Enterprise Act 2002 (the Act) the CMA has a duty to make a reference to phase 2 if the CMA believes that it is or may be the case that a relevant merger situation has been created, or arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
  4. Under the Act a relevant merger situation is created if 2 or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million (‘the turnover test’) or as a result of the transaction, in relation to the supply of goods or services of any description, a 25% share of supply in the United Kingdom (or a substantial part thereof) is created or enhanced (‘the share of supply test’).
  5. The CMA’s duty to refer the merger for a phase 2 investigation under the Act is not exercised whilst the CMA is considering whether to accept undertakings (if offered) in lieu of a reference. Lloyds and Sainsbury’s have until 18 December 2015 to offer undertakings to the CMA that might be accepted by the CMA. If no undertakings are offered and accepted, then the CMA will refer the merger.
  6. All the CMA’s functions in phase 2 merger inquiries are performed by inquiry groups chosen from the CMA’s panel members. The appointed inquiry group are the decision-makers on phase 2 inquiries. The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business. The membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
  7. The full text of this decision will be placed on the merger case page as soon as is reasonably practicable.
  8. Enquiries should be directed to Siobhan Allen (siobhan.allen@cma.gsi.gov.uk, 020 3738 6798).
  9. For information on the CMA see our homepage, or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on merger cases.