A significant shift, with the potential to change the nature of retail pharmacy, may be quietly unfolding. A few weeks ago, private hospital owner Healthscope, in conjunction with private equity, offered to buy Symbion Health. Symbion is the private hospital, pathology, radiology, and wholesale & retail pharmacy arm of the demerged Mayne Health. Mayne continued as a pharmaceutical manufacturer.

The pharmacy sector in which Symbion operates is in a state of flux. The wholesale and retail arms depend for their survival on an agreement between the apothecaries, represented by the Pharmacy Guild, four wholesalers and the Commonwealth.

The agreement, renegotiated every five years, determines the price and terms under which the Government will subsidise medicines under the pharmaceutical benefit scheme. It also regulates ownership and location of pharmacies, effectively keeping other retailers (read Coles and Woolworths) out of the honey pot. For example, the Guild agreement contains a clause which limits the distance that a pharmacy can be relocated, inhibiting movement to more efficient sites. A highly inefficient system is protected and the big boys can’t play.

Symbion supports Terry White and Chemmart; Sigma owns the Amcal and Guardian brands.

Under the Healthscope proposal, the drug businesses, including the pharmacy brands were to go to private equity. Under the Sigma proposal, because of competition concerns, the Symbion pharmacy brands would go to their equity partner, a Carnegie Wylie company.

In the last day or so, there have been offers and counter-offers. Sigma trumped the initial Healthscope bid and was promptly outbid by one dollar by the Healthscope team. Sigma then put in a higher bid but was sent packing by Symbion, which said Sigma was out of time. A Healthscope insider said Sigma CEO Elmo de Alwis may have been given poor advice. Sigma is talking to lawyers.

Now that Sigma appears to have missed out on Symbion, the other wholesaler API (who support Priceline Pharmacy, Chemworld, Pharmacist Advice and Soul Pattinson) will be in play. Whatever happens, a significant chunk of the Australian retail pharmacy branding will be in the hands of a private-equity player.

Private equity is not really interested in running a business in the long term. They like to fatten companies and flog them to the highest bidder, or list them.

Coles and Woolworths have been itching to get dispensaries into supermarkets. There is a profit to be turned and dispensaries drive traffic into stores. Thus far, they have been thwarted. The presence of PE may soon open an opportunity for a major retailer to acquire a piece of the pharmacy sector and be at the table when the next agreement is negotiated.

Rob Lake publishes Brandish – Retail Intelligence, a fortnightly newsletter about things retail.