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The Australian Competition and Consumer Commission (ACCC) is wary of the possible market impact if two of the country's largest pathology companies Australian Clinical Labs Limited (ASX: ACL) and Healius (ASX: HLS) join forces, particularly in Victoria where the sector is already more concentrated.
The boards of both companies have been in a war of words since Australian Clinical Labs made a scrip-based $1.58 billion off-market takeover bid for its larger rival, Healius. In March the target claimed the conditions of the offer were 'overly restrictive and burdensome', while the suitor believes the reasons behind the Healius board's unanimous rejection of the deal are 'fundamentally flawed'.
The competition watchdog notes that both companies supply pathology services to the community, private and public hospitals, and veterinary clinics, competing closely under well-known brands.
These include ACL's additional brands Gribbles Veterinary, BeFunctional Labs, Southern Sun Pathology, Helix Pathology, and SunDoctors.
Healius has numerous brands including Laverty Pathology, Dorevitch Pathology, QML Pathology, Abbott Pathology, Western Diagnostic Pathology, TML Pathology, and others.
"The proposed acquisition would combine two of the top three providers of pathology services in Australia, significantly increasing concentration in already concentrated markets," says ACCC Commissioner Stephen Ridgeway.
The combined ACL and Healius would be the largest provider of community pathology services in every state and territory in which they both operate, owning more than 50 per cent of approved collection centres across Australia.
While competition in pathology services may be less readily apparent to patients, particularly if they are bulk billed, the extent of bulk billing offered by providers is one of the ways they compete.
"The ACCC is concerned that the significant reduction in competition could lead to adverse consequences for patients, including reduced levels of bulk billing, higher co-payments for privately billed services, collection centre closures, less frequent collection of samples, or longer turnaround times," Ridgeway says.
"Market feedback has identified strong concerns about the impact of this acquisition on community pathology services, and there is the potential for even greater impacts in regional and remote areas."
The ACCC explains that in Victoria, where public hospital pathology is more commonly outsourced to private providers compared to other states, ACL and Healius are two of only three private providers of public in-patient services.
The ACCC’s preliminary view is that the combined ACL and Healius may be able to increase prices or reduce service quality in bids for public hospital tenders, which would particularly affect Victoria.
Additionally, the proposed acquisition may lead to a substantial lessening of competition in veterinary pathology services.
“It would combine two important competitors in already concentrated markets for the supply of veterinary pathology services in Victoria and South Australia," Ridgeway says.
In response, ACL has extended its takeover bid as remaining open for acceptance by shareholders until 17 November.
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