API plots Sigma takeover

SIGMA Healthcare Limited has advised its shareholders that there is “no certainty” that the indicative merger proposal received from Australian Pharmaceutical Industries on Fri (PD breaking news) will result in a transaction.

The company responded to API’s announcement by confirming that it had received the proposal in Oct 2018, with the rival firm offering to acquire all the shares in Sigma via a scheme of arrangement.

Under the Indicative Proposal Sigma shareholders would receive 0.31 API shares plus 23c in cash for each Sigma share held.

“The Indicative Proposal was subject to a number of conditions including due diligence, a unanimous Board recommendation and receipt of all regulatory approvals including any required competition approvals,” Sigma said.

The Sigma board said it had commissioned consulting firm Accenture to undertake an assessment of the future expectations of the company on a standalone basis, with initial conclusions suggesting a “material value opportunity for all Sigma shareholders post a restructure of the business following the company’s decision not to renew its contract with Chemist Warehouse”.

API has taken a 12.95% stake in Sigma Healthcare, saying the rationale for a merger is “more compelling than ever” due to ongoing Community Service Obligation funding being flat while costs are increasing, PBS reforms continuing to drive price deflation, and the industry landscape remaining highly competitive “with new entrants and further disruption likely”.

“The merged business would provide scale and volume, which will give greater scope for the ongoing investment in technology that is essential to ensure a competitive, sustainable and efficient wholesale model in the future,” said API Chair, Mark Smith.

API is estimating $60 million in gross financial benefits through merging the companies, and is urging the Sigma Board to engage in order to allow the full merger benefits to be reviewed.

The company hopes to deliver a binding proposal early in 2019.

Fri’s announcement saw Sigma shares surge over 43% to 58c.