API doubts Sigma plans as merger hopes end

Marco Green
March 15, 2019

Australian pharmacy operator Sigma Healthcare Ltd's (SIG.AX) board on Wednesday rejected a A$727 million ($514.5 million) takeover bid from Australian Pharmaceutical Industries Ltd (API) (API.AX), saying it was not in the best interests of shareholders.

Sigma's board believes the deal is not in the best interests of shareholders, the company says in an ASX announcement.

Sigma chairman Brian Jamieson said the API proposal did not reflect Sigma's long-term prospects and inherent value.

Sigma also said that the returns to Sigma shareholders under the API Proposal would depend on ACCC approval of the transaction, the successful integration of the two businesses, capturing the proposed synergy benefits, as well as the continued trading performance of both businesses and market trading valuation metrics... implying an execution risk.

But Sigma said shareholders should be buoyed by the cost savings of losing that deal.

Sigma has been cutting costs and launched a business review with Accenture after it lost the major Chemist Warehouse contract past year.

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.

API criticised Sigma for cutting off talks and prioritising "the uncertain restructure of its standalone business", which will be downsized significantly following the loss of Chemist Warehouse contract.

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.

"Based on Sigma's publicly disclosed earnings guidance, it is clear that a substantial portion of the claimed $100m cost savings will be offset by lost Chemist Warehouse revenue".

In addition, $300 million in working capital will be freed up, which is expected to be used to fund growth opportunities.

At 1031 AEDT Sigma shares were trading at 59 cents a share, down 3.28 per cent. API shares were trading at $1.3875 a share, down 0.89 per cent.

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