Aust Pharma Edges Closer To Sigma Deal

By Glenn Dyer | More Articles by Glenn Dyer

Australian Pharmaceutical Industries is moving closer to embracing rival drug distributor, Sigma Healthcare.

On October 11, API had offered to buy Sigma for $727 million, where shareholders of the pharmacy operator would receive 0.31 API shares and 23 cents in cash for each of their shares.

On December 14, API revealed that it held 12.95% of Sigma’s shares.

We purchased these shares to help expedite our proposed merger and to guarantee that there was flexibility in our strategic options should the environment change,” API chair, Mark Smith told the meeting.

“We anticipate signing a non-disclosure agreement shortly that will then allow a due diligence process to commence,” Mr. Smith told the company’s annual meeting on Wednesday.

“Should the scheme be implemented as presented in the 11 October 2018 proposal, and it is subject to both due diligence and regulatory approval, API shareholders would own approximately 63 percent of the combined entity, with Sigma shareholders owning the remaining 37 percent,” Mr. Smith said yesterday.

“A combined entity would create greater efficiencies in the wholesaling business. In the face of slowing revenue growth and compressed margins in the wholesaling sector, this would provide scale and volume, giving greater scope for the ongoing investment in technology. Such an investment would ensure a more competitive, sustainable and more efficient wholesaling model.

“By delivering a more efficient pharmacy distribution business, a merged entity would more likely provide community pharmacies with beneficial trading terms that allow them to continue offering lower retail prices on pharmaceuticals and associated health and beauty products to compete in the retail market.

“The benefits of the proposed merger for shareholders would come from infrastructure and back office cost savings. Based on publicly available information, we estimate the merged entity would deliver annualised pro-forma gross cost savings from pharmacy distribution and corporate functions of circa $60 million per annum by year three of the merger,” Mr. Smith told the meeting yesterday.

CEO Richard Vincent told the meeting that the company expects earnings before interest and tax in the first half of this financial year “to reflect 5% growth on the prior year. We expect this operational performance to remain sound, bearing in mind that results for the first half will also see an increase in financing costs, largely due to funding required for the acquisition of shares in Sigma.”

API shares fell 1.6% to $1.475 yesterday.

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About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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