Sigma Rebuffs Aust Pharma Takeover

Sigma Healthcare (SIP) shares slumped 15% at one stage yesterday after rejected a half-hearted takeover offer from rival Australian Pharmaceutical Industries (API).

Sigma shares ended at 53.5 cents, down 12.5% on the day, but well above the 40.5 cents, they were at when API revealed its indicative offer on December 14 last year.

Yesterday Sigma justified its rejection, saying the offer is not in the best interest of shareholders.

Sigma told the market in yesterday’s statement that API had reaffirmed its indicative offer last week and waived a condition relating to cost synergies after due diligence.

Sigma said its board, having completed a detailed assessment of API’s offer and concluded that the company’s future as a stand-alone business, offers better opportunities for investors.

“The current API proposal does not reflect the long-term prospects and value inherent in Sigma having regard to the reset cost base of the business and our own growth agenda,” Sigma chairman Brian Jamieson said in yesterday’s statement.

The Sigma statement mentioned a number of factors, including the outcome of the company’s strategic review last month, the fall in the value of API’s deal since it was announced.

The deal was worth $726 million at the time but the fall in the API’s share price means the deal, which is to be financed with cash and API shares, is now worth less than $700 million.

There is also the prospect of the deal being rejected by the competition regulator due to Sigma and API’s market share in the pharmaceutical wholesale sector.

Sigma completed its own review in February and reported that it identified $100 million in annual cost savings after completing a four-month strategic review which looked at the company’s future after the lucrative Chemist Warehouse contract ends this year.

The cost savings will enable underlying earnings to rebound to 2019 levels by the 2023 financial year, according to Sigma.

The loss of the Chemist Warehouse contract will free up around $300 million cash for further acquisitions to boost “invest in income streams that build off the same infrastructure,” Sigma chief executive Mark Hooper said in February.

Sigma reports its full-year results next week.

API shares fell 3.5% to $1.35 yesterday.

Glenn Dyer

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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