Competition Bureau clears McKesson's acquisition of Rexall Health, subject to conditions

December 15, 2016

On December 14, the Competition Bureau entered into a consent agreement with McKesson Corporation in relation to its acquisition of Rexall Health from Katz Group. The agreement brings an end to the Bureau’s extensive review of the transaction, which was announced over nine months ago, on March 2, 2016.

Upon closing of the transaction, McKesson, the largest pharmaceutical product wholesaler in Canada, will acquire Rexall Health’s approximately 470 retail pharmacies. The Bureau determined that the acquisition would likely result in a substantial lessening or prevention of competition in the wholesale and retail of certain pharmacy products and services.

The remedies required by the Bureau under the consent agreement can be divided into two broad categories: structural and behavioural.

  • Structural: McKesson is required to sell 28 Rexall retail pharmacies spread across 26 suburban and rural markets in Alberta, British Columbia, the Northwest Territories, Ontario and Saskatchewan. Structural remedies (i.e., divestments) are very common in Competition Bureau consent agreements, and respond to concerns that the transaction would reduce competition for the retail sale of pharmacy products in certain communities.
  • Behavioural: In addition to the divestment requirement, the consent agreement requires McKesson to impose a “firewall” to restrict the flow of commercially sensitive information between its pharmaceutical wholesale business and its newly acquired Rexall retail business. McKesson is the largest wholesale pharmacy supplier in Canada, and will supply products to its owned Rexall locations, and to their competitors; the firewall is intended to preserve competition between Rexall and its retail competitors. A similar “firewall” requirement was imposedwhen Bell and Rogers each acquired a 50% interest in Glentel, a cellphone retailer. In the Glentel transaction, the firewall was intended to prevent information-sharing between two competitors (Bell and Rogers), whereas in the Rexall transaction, the firewall prevents the sharing of information within McKesson, between its wholesale and retail businesses.

This combination of structural and behavioural remedies echoes the Bureau’s approach in other recent retail transactions, including the Loblaw/Shoppersand the Parkland/Pioneerdeals. 

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