Sigma Healthcare to merge with Chemist Warehouse to create healthcare industry powerhouse

Sigma Healthcare Limited (“Sigma”) has entered into a Merger Implementation Agreement (MIA) with CW Group Holdings Limited (“CWG” or Chemist Warehouse Group) to create a leading healthcare wholesaler, distributor, and retail pharmacy franchisor. This proposed merger (Proposed Merger) represents a significant step in enhancing the healthcare landscape.

The merger brings together two influential players in the healthcare sector. CWG is a leading Australian retail pharmacy franchisor, supporting a multinational retail network of approximately 600 stores, predominantly under the Chemist Warehouse brand. Sigma, a major Australian pharmaceutical wholesaler and pharmacy franchisor, complements CWG’s retailing prowess with its extensive distribution infrastructure.

Highlights of the Proposed Merger

• The merger will be effected by Sigma acquiring CWG through a scheme of arrangement (Scheme), with CWG shareholders receiving Sigma shares and a $700 million cash consideration.
• Post-merger, CWG shareholders will hold 85.75% of the merged group (MergeCo), and Sigma shareholders will hold 14.25%.
• This union aims to unlock significant efficiencies and synergies, initially estimated at about $60 million per annum, expected to be realized four years post-completion.
• The indicative MergeCo market capitalization is expected to exceed $8.8 billion, positioning it well within the S&P/ASX200 following quarterly re-balancing.

Strategic and Commercial Rationale Behind the Merger

Sigma’s Chairman, Michael Sammells, emphasized that the merger is a step-change event for Sigma, aligning with a 40-year commercial relationship with CWG. The merger is expected to unlock synergies and growth opportunities, benefitting franchisees and customers with expanded product and service offerings.

Jack Gance, CWG Chairman, highlighted the unique opportunity presented by combining CWG’s retailing and marketing capabilities with Sigma’s state-of-the-art distribution and logistics capabilities.

Transaction Details and Future Prospects

• Sigma simultaneously announces a fully underwritten pro-rata accelerated non-renounceable entitlement offer to raise approximately $400 million. This fundraising will support the implementation of the new Chemist Warehouse supply contract commencing on July 1, 2024, and progress business growth initiatives.
• The Proposed Merger is subject to several conditions, including approvals from ACCC and (if required) OIO, CWG shareholder approval, court approval of the Scheme, and Sigma shareholder approvals.

Impact on the Healthcare Industry

The merger of Sigma Healthcare and CW Group Holdings promises to create a full-service wholesaler, distributor, and retail pharmacy franchisor with a larger, diversified earnings base and significant synergy potential. This strategic move is set to redefine the healthcare wholesaling and pharmacy franchising sectors, offering comprehensive solutions and enhanced services to the healthcare community.