Australian Pharmaceutical Industries Limited (ASX: API) has become a substantial shareholder in Sigma Healthcare Limited (ASX: SIG) by holding 12.95 percent of its shares. Further, API has also reconfirmed the terms of a non-binding indicative proposal made to Sigma’s Board on 11 October 2018 to fully acquire Sigma through a scheme of arrangement. Following the release of this news, the share price of API increased by 8.163 percent and SIG’s share price increased by 45.679 percent as on 14 December 2018.
As per the API Proposal, Sigma’s shareholders will receive 0.31 API shares and $0.23 cash for each Sigma share. And, based on the terms of the API proposal and the API share price at the close of trading on yesterday (13 December 2018), the API proposal would equate to $0.686 per Sigma share which represent a 69.3 percent premium to the SIG share price as at the close of trading on yesterday (13 December 2018). And, it also represents a 46.5 percent premium to the 1-month volume weighted average Sigma share price of $0.468. After the implementation of the scheme, API shareholders will be having around 63 percent of the combined entity and Sigma shareholders will have the remaining 37 percent.
API is trying to work cooperatively with the Board of Sigma to create more value for all stakeholders, and as per the API Board, this merger is the best opportunity for delivering significant benefits to both groups.
As per API, the rationale for merging the companies is more compelling than ever due to the ongoing Government funding for the Community Service Obligation remaining flat while input costs are increasing. The API shareholding in Sigma has the intention of ensuring that the API holds strategic options in the future shape of the industry.
While commenting on the proposed merger, API’s Chairman Mr. Mark Smith said that a combined entity would generate more efficiencies in the wholesaling business and through this combined business the pharmacists could get more assistance in responding to the current regulatory impacts and increasing retail competition. The merged business will help both the companies to get through the face of slowing revenue growth, projected margin and revenue pressures which are caused by the Government policies and increased competition. Further, the merger will help in providing scale and volume, which will give greater scope for the ongoing investment in technology which is essential to ensure a competitive, sustainable and efficient wholesale model in the future.
API is seeking full engagement with Sigma and will deliver a binding proposal early in 2019. The company has advised the Australian Competition and Consumer Commission (ACCC) of its shareholding and intent to seek a merger with Sigma. Further, API will engage with the Sigma Board to allow the full merger benefits to be reviewed and agreed so that all shareholders can share in the upside of the combined entity. During the next phase, API expects to operate its business as usual and will not seek representation on the Sigma Board.
In the last six months, the share price of API increased by 11.79 percent as on 13 December 2018. API’s shares traded at $1.590 with a market capitalization of circa $724.02 million as on 14 December 2018 (ASX: 2:07 PM).
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