ASX Health Stocks: ACCC shoots down merger between pathology stocks ACL and Healius

ACL’s proposed acquisition of Healius shot down by ACCC
The ACCC says a merger could lessen competition in Australian pathology services markets
In March, Healius received an all-scrip offer from ACL, a company half its size

The Australian Competition and Consumer Commission (ACCC) has opposed the proposed $1.58 billion merger between Australian Clinical Labs (ASX: ACL) and Healius (ASX: HLS).

The watchdog concluded that the proposed acquisition is likely to result in a substantial lessening of competition in Australian pathology services markets.

The ACCC says a merger would substantially lessen competition in the supply of out-patient pathology services, private hospital in-patient pathology services, and commercial pathology services.

ACL and Healius both supply pathology services to the community, private and public hospitals, commercial and government customers, and veterinary clinics. They compete closely with one another and offer services under well-known brands.

“We consider that the proposed acquisition would be likely to result in a substantial lessening of competition as it would combine two of the three largest providers of pathology services in Australia, further consolidating already-concentrated markets,” ACCC Commissioner Stephen Ridgeway said.

“A combined ACL and Healius would operate more than 50 per cent of approved pathology collection centres in Australia. In some regions, they are the only two pathology providers available to patients.”

On 20 March, Healius had received an unsolicited conditional takeover offer from ACL to acquire 100% of the shares in Healius for scrip consideration of 0.74 ACL shares for every 1 Healius share.

The proposal was unconventional in that the ACL, at $500m market cap, is half the size of its target, Healius, at $1bn.

ACL’s board believed a material synergy of approximately $95 million could be gained by bringing the two pathology services companies together.

Following today’s decision by the ACCC, ACL says it intends to withdraw the offer and cancel its Extraordinary General Meeting that was set to take place to vote on the deal.