Billionaire pharmacy kings eye windfall from Chemist Warehouse-Sigma deal

A windfall awaits for the billionaire Gance and Verrocchi families as part of the backdoor listing of Chemist Warehouse on the ASX.

The billionaire Gance and Verrocchi families will each emerge with more than $3bn of scrip as part of the blockbuster sharemarket listing of Chemist Warehouse, with the $810m reverse takeover deal with Sigma Healthcare to be investigated by the competition regulator.

Details of the deal are set to be released to the ASX early on Monday morning, confirming key details of what is likely a roughly $8bn tie-up.

The backdoor listing of the retail chemist giant into Sigma follows a deal in June when Chemist Warehouse changed its pharmaceutical wholesaler from EBOS to Sigma in return for $24.5m in cash and 10 per cent of the company.

The deal will see the Gance and Verrocchi shareholdings in a larger combined group held in escrow for at least a year, and family patriarchs Jack Gance and Mario Verrocchi join a combined board.

The board will have equal representation from both the Chemist Warehouse and Sigma camps. Sigma chief executive Vikesh Ramsunder will stay in his role.

Sigma is already just under 20 per cent-controlled by HMC Capital boss and deal-maker David Di Pilla, which means the combined existing Chemist Warehouse and Di Pilla stake is about 30 per cent.

Chemist Warehouse co-founder Jack Gance. Picture: Aaron Francis

Mr Di Pilla is also likely to join the Sigma board, having emerged as a kingmaker in the deal.

The Chemist Warehouse founders – who built the business into an Australian retail giant, with their centrally-controlled private CW Group accounting for $3bn in sales alone – have long considered floating on the ASX. The Gance and Verrocchi family stakes in the combined Sigma/Chemist Warehouse listed entity will be among the biggest individual or family-held shareholdings in an ASX-listed company, behind those of a handful of billionaires, including Andrew and Nicola Forrest at Fortescue Metals Group, WiseTech Global’s Richard White, Reece’s Wilson family and Seven Group Holdings executive chairman Kerry Stokes. Sigma shareholders will learn further details of the combination on Monday, ahead of other pending documentation such as a prospectus and scheme of arrangement documents.

Sigma is raising $350m through investment bank Goldman Sachs  which will be used for working capital, and it is likely the Gance and Verrocchi families will take several hundred million dollars off the table at some point of the transaction.

Chemist Warehouse initially mooted the idea of a listing in late 2020 and hired Rothschild to prepare the business for a float. Rothschild has been advising Chemist Warehouse on the current deal, while Sigma has employed Goldman Sachs.

Sigma entered into a long-term, $3bn supply deal with Chemist Warehouse in August, cementing commercial links between the two healthcare companies.

Matt Verrocchi and Mario Verrocchi.

In 2018 EBOS reportedly won the Chemist Warehouse account with a $100m payment.

The wholesale market is dominated by three players: Sigma, the Wesfarmers-controlled API and market leader EBOS, the former Symbion, which has about 26 per cent of the market.

Sigma controls 19 per cent and API 17 per cent.

Sigma also has the Amcal and Guardian groups of chemists, and their combination with Chemist Warehouse arguably raises competition barriers.

The ACCC has long taken a close interest in the pharmaceutical sector.

In 2002 it blocked a proposed merger between API and Sigma, arguing it would reduce the number of wholesalers which could impact service.

Now the interest is in the combination of the market wildcard Chemist Warehouse, which has 21 per cent of the retail market, and the Amcal and Guardian banner groups of chemists, with a major wholesaler in Sigma.

The ACCC is also poised to formally launch an investigation into any deal between Woodside and Santos, with the combined east coast gas assets the key concern.

Separately, the ACCC is this week expected to approve Viva’s proposed $1.23bn acquisition of Peregrine’s OTR group, owned by Adelaide’s billionaire Shahin family, after Viva undertook to sell a large slice of the Adelaide convenience sites.

But it is likely to block the ACL-Healius pathology merger despite an undertaking to sell some labs, and Woolworths’ acquisition of Petstock is lineball, even after divestments.

The emergence of two blockbuster investigations – Woodside and Santos, and Sigma and Chemist Warehouse – marks a busy end to a quiet merger year for the Australian Competition & Consumer Commission.