Private-owned Chemist Warehouse is set to become an ASX 200 top company through its backward takeover of Sigma Healthcare (ASX:SIG), creating a company valued at an estimated $8.8 billion.
Sigma announced on Monday that it plans to raise $400 million as part of the merger, bringing together its wholesale and franchise pharmacy business with Chemist Warehouse's network of 600 stores.
Approval from competition regulators and shareholders is required for the proposed deal, which has already faced opposition from the Pharmacy Guild, representing independent pharmacies with its own anti-competitive rules.
The newly enlarged Sigma will compete with NZ-based Ebos, which controls the Symbion pharmaceutical distribution business, as well as chains like TerryWhiteChemart, Pharmacy Choice, and associated wholesale businesses.
A smaller competitor, Wesfarmers Health, owns a total of 76 company-owned Priceline pharmacies and 396 franchised Priceline outlets.
Sigma stated on Monday that the merger would be carried out by Sigma acquiring CWG via a scheme of arrangement in exchange for Sigma shares and $700 million in cash.
The statement also revealed that Chemist Warehouse's billionaire founders, Jack Gance and Mario Verrocchi, will join the combined group's board. They will collectively own 85.75% of the newly merged entity, valuing their holdings at over $3.75 billion each.
Gance expressed enthusiasm for the deal, emphasizing its potential to create a vertically integrated medicine distribution and pharmacy business. He noted that the merger's combination of retailing and marketing capabilities from Chemist Warehouse with Sigma's state-of-the-art distribution infrastructure and logistics capabilities presents unique opportunities for shareholders of both companies.
The transaction must receive approval from the Australian Consumer and Competition Commission and New Zealand's Overseas Investment Office. Shareholders in Sigma and Chemist Warehouse will also vote on the deal in early 2024.
Sigma stated that the $400 million equity raising will provide the increased working capital required to implement the Chemist Warehouse supply contract signed on August 31, 2023, and to advance business growth initiatives. In the event the proposed merger proceeds, any remaining net proceeds from the Entitlement Offer may be used to partially fund the cash consideration payable under the merger, as discussed in the Investor Presentation.
