In an unusually generous deal, McPherson’s is placing almost 10% of its capital with the giant Chemist Warehouse Group in exchange for a major distribution agreement.
McPherson’s will distribute some Chemist Warehouse products outside the ANZ market and gain more shelf space for some of its health, wellness and beauty products in the latter’s stores across Australia.
The news saw McPherson’s share price surge 15% at one stage to a high of $1.02 as investors reacted very positively to the arrangement. They later eased to be still up 5.67% at the close at 94 cents.
As part of the agreement, McPherson’s will be appointed as Chemist Warehouse’s exclusive long-term distributor of a select portfolio of Chemist Warehouse-owned or controlled health and beauty brands outside of the Chemist Warehouse Network in Australia and New Zealand.
The range, which includes Wagner Vitamins, Wagner Body Science, Bondi Protein, Foster Grant, INC and Microgenics, will be made available to all customers within the McPherson’s distribution network for an initial term of five-years commencing on July 1 this year (ie at the start of the 2022-23 financial year).
In addition, Chemist Warehouse will increase the portfolio of McPherson’s brands it currently carries in its outlets in Australia and New Zealand, to include Moosehead, Maseur, Fusion Health, Stratton, Sugar Baby and Happy Flora.
The pharmacy giant will also recognise McPherson’s as a preferred supplier, allowing the company to enjoy the benefits (unstated) of that status.
In exchange McPherson’s is essentially giving 9.9% of the company to Chemist Warehouse in exchange for these agreements.
Thursday’s announcement says the company will issue approximately 14.1 million McPherson’s shares to Chemist Warehouse on July 1 this year 2022. These will be held in escrow for two years.
Despite the dilution caused by the share issue, McPherson’s reckons the agreement will add to earnings in the 2023 financial year (based on agreed sales targets).
McPherson’s says there will be three five-year options to extend the arrangements, subject to certain minimum performance thresholds on a brand-by- brand basis “which McPherson’s considers it is well placed to meet.”
McPherson’s Chairman Ari Mervis said: the company “is delighted to welcome Chemist Warehouse onto our share register as a significant shareholder, and to be entering into the Strategic Alliance with our largest customer that is strongly aligned to our growth aspirations in the health, wellness and beauty categories”.
“The strong support to be provided by Chemist Warehouse for our Core Brands as well as the incremental ranging in-store and online for our other health and beauty brands is expected to accelerate our growth domestically as well as internationally through Chemist Warehouse’s physical and e-commerce platforms.”
“Further, the ability to sell the Chemist Warehouse owned or controlled health and beauty brands through McPherson’s distribution channels is highly complementary and synergistic to our existing capabilities.”
