Sigma rejects API proposal

The Board of Sigma has concluded that the Australian Pharmaceuticals Industries (API) Proposal is not in the best interests of Sigma shareholders.

Sigma Chairman Brian Jamieson said: “The Board is confident that after thoroughly assessing the outlook of Sigma on a standalone basis, 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. Therefore, after considering the API Proposal in detail, we believe it is not in the best interests of our shareholders.”

As previously reported, on December 14, 2018, Sigma received a non-binding indicative proposal from API to acquire all the shares in Sigma, via a scheme of arrangement, for 0.31 API shares plus $0.23 cents in cash for each Sigma share held.

In coming to this conclusion, the Board said it considered the following factors:

  • The future potential for Sigma on a standalone basis: As announced February 11, 2019, a business review undertaken by Sigma in conjunction with Accenture identified more than $100 million annual cost savings post the expiration of the MyChemist/Chemist Warehouse (MC/CW) contract, with potential for further upside to be achieved. The Board believes that significant shareholder value could be realised for Sigma shareholders on a standalone basis through the implementation of these cost saving initiatives over the next two years.
  • Sigma’s investment in distribution centre infrastructure is well advanced, providing efficient capacity to grow.
  • The working capital release of around $300 million from the MC/CW contract is expected to be deployed into future growth opportunities for Sigma, creating additional value for Sigma shareholders.
  • Valuation metrics: Since the date of the API Proposal on October 11, 2018, the API share price has declined over 15 per cent, implying a value for the API Proposal of 67 cents per Sigma share at close on March 12, 2019. This represents a 12 per cent decline in offer value to shareholders.
  • Execution risk: 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.

The Sigma Board said it remains committed to maximising value for shareholders and will keep shareholders informed of any further developments.