By Sameer Manekar and Rishav Chatterjee

(Reuters) - The Australian competition regulator, on Thursday, cleared privately owned pharmacy chain Chemist Warehouse's reverse takeover of Sigma Healthcare, paving the way to create an A$8.8 billion ($5.78 billion) entity after a year-long wait.

Sigma's stock surged almost 40%, the most on the Australian benchmark index, to hit a record high.

Chemist Warehouse had said roughly a year back it would buy Sigma for stock and A$700 million in cash, giving it a roughly 85% stake in the merged entity and a backdoor way to list on the stock exchange at a time when global capital markets were in the doldrums.

But the deal -- creating a company supplying around 1,000 Sigma-aligned pharmacies and owning 600 Chemist Warehouse outlets -- has been under the Australian Competition and Consumer Commission's (ACCC) scrutiny and was cleared after the companies made concessions to alleviate competition concerns.

The ACCC said the proposed deal was unlikely to substantially lessen competition subject to Sigma allowing franchises to opt out of their agreements without penalties to make it easier for a pharmacy to switch networks.

"The ACCC's analysis found that the proposed merger is unlikely to substantially lessen competition nationally or locally because other pharmacies and non-pharmacy retailers will continue to compete to the same extent they compete now," Chair Gina Cass-Gottlieb said.

Brokerage Jefferies said investors will get access to a standout retail franchise in the healthcare sector once the deal closes.

Despite the ACCC's clearance, the deal faces criticism from rival Ebos Australia and a powerful industry group in Canberra called Pharmacy Guild.

"The ACCC will need to carefully monitor the merger and its impact on patients," said a spokesperson for the Guild.

"Market consolidation in health services leads to non-competitive duopolies, an unequal distribution of doctors and a reduction in smaller businesses better equipped to provide local and personalised health services to their communities."

Ebos did not immediately respond to a Reuters request for comment. ($1 = 1.5129 Australian dollars)

(Reporting by Sameer Manekar and Rishav Chatterjee in Bengaluru; Editing by Shailesh Kuber, Lincoln Feast and Savio D'Souza)