API doubts Sigma plans as merger hopes end

Galtero Lara
Marcha 15, 2019

Sigma Healthcare (SIP) shares slumped 15% at one stage yesterday after rejected a half-hearted takeover offer from rival Australian Pharmaceutical Industries (API).

API owns almost 13 percent of Sigma.

"Therefore, after considering the API proposal in detail, we believe it is not in the best interests of our shareholders".

"The Board is confident that after thoroughly assessing the outlook of Sigma on a standalone basis, the current API proposal does not reflect the long-term prospects and value inherent in Sigma having regard to the reset cost base of the business and our own growth agenda", said Sigma chairman Brian Jamieson.

The Sigma statement mentioned a number of factors, including the outcome of the company's strategic review last month, the fall in the value of API's deal since it was announced.

"The Sigma board has chosen a path to restructure its significantly downsized business, rather than pursue a merger to create a future that benefits consumers, pharmacists and both sets of shareholders", it said.

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The deal was worth $726 million at the time but the fall in the API's share price means the deal, which is to be financed with cash and API shares, is now worth less than $700 million.

In January, the two companies began a "limited form of due diligence", which included mutual sharing of high-level information.

"A business review undertaken by Sigma in conjunction with Accenture identified over $100 million annual cost savings post the expiration of the MyChemist/Chemist Warehouse (MC/CW) contract, with potential for further upside to be achieved", it said.

In addition, $300 million in working capital will be freed up, which is expected to be used to fund growth opportunities.

"Based on Sigma's publicly disclosed earnings guidance, it is clear that a substantial portion of the claimed $100m cost savings will be offset by lost Chemist Warehouse revenue".

Sigma reports its full-year results next week.

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