API doubts Sigma plans
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The proposed merger between the owners of the Priceline and Amcal pharmacy chains is off after Sigma Healthcare rebuffed an approach by its rival.
Amcal owner Sigma, which is restructuring after losing a contract to supply Chemist Warehouse, said on Wednesday that October’s cash-and-scrip approach by Australian Pharmaceuticals Industries had undervalued its long-term prospects.
Instead of responding with an increased offer, API questioned Sigma’s plans and said it would now decide what to do with the 12.85 per cent stake it bought late last year.
“The Sigma Board has chose 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,” API said.
Sigma said it agreed the tie-up could save the combined company $60 million a year through supply chain consolidation, but that a business review completed last month found $100 million in potential savings through cost-cutting as a stand-alone company.
It also said that a decline in API’s share price also meant the offer was worth 12 per cent less than when it was made in October.
The offer was worth about $727 million when it was made public in December.
API countered by saying the cost savings that Sigma was citing were uncertain and unclear, and would mostly be offset by revenue lost by Chemist Warehouse’s decision to take its business elsewhere.
It also pointed out its offer represented a 41.8 per cent premium to the average price of Sigma shares in the month before the offer was announced.
“API notes that very little information has been provided by Sigma in relation to its intended restructure,” API said.
Sigma shares slumped on the development, dropping 14 per cent to 52.5 cents by 1423 AEDT, their lowest since before the merger proposal was made public.
API shares were down 3.57 per cent, at $1.35.
Sigma is the owner of franchise brands Amcal, Chemist King, Discount Drugs and Guardian.
API owns the Priceline, Soul Pattinson and Pharmacist Advice brands.
Questions & Answers
Q.What reason did Sigma give for rejecting API's offer?
What reason did Sigma give for rejecting API's offer?
Sigma stated that the cash-and-scrip approach undervalued its long-term prospects. Also, a business review identified $100 million in potential cost-cutting savings as a standalone company, and API's share price decline reduced the offer's value.
Q.How much was API's offer worth when it was made public?
How much was API's offer worth when it was made public?
API's offer was worth approximately $727 million when it was made public in December. The article notes that the value of the offer had decreased by 12 per cent since it was initially made in October.
Q.What was API's reaction to Sigma's rejection of the merger?
What was API's reaction to Sigma's rejection of the merger?
API questioned Sigma's standalone plans, stating the cited cost savings were uncertain and would likely be offset by lost revenue. It also noted Sigma provided little information about its intended restructure and is now deciding what to do with its 12.85 per cent stake.
Q.Which pharmacy brands are owned by Sigma Healthcare and Australian Pharmaceuticals Industries?
Which pharmacy brands are owned by Sigma Healthcare and Australian Pharmaceuticals Industries?
Sigma Healthcare owns the Amcal, Chemist King, Discount Drugs, and Guardian franchise brands. Australian Pharmaceuticals Industries owns the Priceline, Soul Pattinson, and Pharmacist Advice brands.