Without disclosing any detail on the structure, the Competition Commission of India said it has approved the merger of MedLife with larger online pharmacy PharmEasy. The companies had filed for merger in August, and proposed a combination wherein API Holdings, the parent company of Pharmeasy will acquire a 100% stake in MedLife; in return, MedLife will acquire a 19.9% in the combined entity.
The merger has come through despite opposition from the Delhi-based South Chemists & Druggists Association, which argued that onlne pharmacies are not allowed under the law, and hence the CCI cannot permit “combination for an illegal purpose”.
In a representation to the CCI last week, the association had said that the proposed merger is essentially “that of two e-pharmacies as well as companies involved in the distribution chain”. It also said that the deep discounting by e-pharmacies can harm competition, given that these “are not based on any efficient business model but solely due to cash burn thanks to investment from foreign based entities”.
Thus, the resulting monopolistic market structure arising from the entry barriers created on account of network effects, coupled with the exit of efficient competitors from the market, cannot be easily self-corrected by market forces.
Since the e-pharmacies are any ways operating without any license, the combined entity would exploit the entire set up for its own benefit, at great cost of competition in the market. The combination would adversely distort the market, since the small retailers, offline chemists cannot integrate the distribution and retail sale under one umbrella due to license conditions, nor have the capacity to do so. — SCDA
This merger in the online pharmacy space is the first since the entry of bigger players such as Reliance and Amazon into online medicine delivery space. Reliance Retail acquired a 60% stake in the Vitalic Health, parent company of Chennai-based NetMeds. The deal granted Reliance Retail 100% ownership of Vitalic’s subsidiaries — NetMeds Marketplace, Tresara Health, and Dadha Pharma Distribution. Amazon also launched their online pharmacy in Bangalore, and began taking orders for prescription-based and over-the-counter medicines, “basic health devices”, and Ayurveda medication.