API to buy out Sigma

Australian Pharmaceutical Industries Limited (API) acquires 100 per cent of the shares in Sigma, via a scheme of arrangement (scheme).

Under that proposal Sigma’s shareholders would receive 0.31 API shares and $0.23 cash for each Sigma share.

Based on the terms of the API proposal and the API share price at close of trading on 13 December 2018, the API proposal would equate to $0.686 per Sigma share, representing:
• A 69.3 per cent premium to the Sigma share price as at the close of trading on December 13 2018; and
• A 46.5 per cent premium to the one month volume weighted average Sigma share price of $0.468.
Following implementation of the scheme, API shareholders would own approximately 63 per cent of the combined entity with Sigma shareholders owning the remaining 37 per cent.

API CEO and Managing Director Richard Vincent spoke to Retail Pharmacy and assured pharmacists that they had nothing to be concerned about and that all API and Sigma brands would be retained, and the combined retail expertise brought to the table.

“This will help strengthen those models but they already have distinct value propositions so we are not looking to look those apart but just polish them,” he said.

“Initially we will let the brands compete as they are now. One thing I have understood in mergers is that you wait and truly understand before you change things.”

API’s Chairman, Mark Smith, says that the API Board believes a merger is the best opportunity to deliver significant benefits to both groups of shareholders, pharmacists and customers. API is seeking to work cooperatively with the Sigma Board to create more value for all stakeholders.

“A combined entity would create greater efficiencies in the wholesaling business to the ongoing benefit of all shareholders. This, in turn, would enable the combined business to provide greater assistance to pharmacists as they respond to current regulatory impacts and increasing retail competition, enabling a stronger, viable community pharmacy industry.

“In the face of slowing revenue growth, projected margin and revenue pressures due to government policy and also increased competition, 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.”

Based on publicly available information, API currently estimates that the acquisition will deliver annualised pro-forma gross cost savings from pharmacy distribution and corporate functions of $60 million by year three of the merger. Subject to due diligence, it is anticipated that the proposed merger would be immediately accretive to earnings per share. API will fund the cash component of the proposal from recently secured debt facilities.

Mr Vincent says he is cautiously optimistic of the merger going through the ACCC as “its a very structured process and will take the best of around six months”.


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