Chemist Warehouse set for blockbuster $8bn deal with Sigma Healthcare

A reverse takeover will see Chemist Warehouse go public on the ASX in a deal that will net co-founders Jack Gance and Mario Verrocchi stakes worth several billion dollars.

Chemist Warehouse is set to emerge a listed entity worth about $8bn as part of a reverse takeover deal with commercial partner Sigma Healthcare.

The blockbuster deal will see Chemist Warehouse billionaire co-founders Jack Gance and Mario Verrocchi join the board of the ASX-listed Sigma as part of a transaction that will see the duo’s respective families emerge as large shareholders of the combined conglomerate.

Mr Gance and Mr Verrocchi, who have built Chemist Warehouse into a retail powerhouse with sales of their centrally-held private company CW Group Holdings topping the $3bn mark alone, are also set to take several hundred million dollars off the table in a move that will crystallise some of their paper fortune.

David Di Pilla, managing director of HMC Capital, is also believed to be bound for a Sigma board role, with Chemist Warehouse and Sigma representatives sharing a 50/50 split on the combined entity’s board.

Current Sigma chief executive Vikesh Ramsunder would stay in his role as part of the plan to combine Chemist Warehouse and Sigma, according to sources.

HMC Capital is a Sigma shareholder, while the Chemist Warehouse co-founders own shares in various HMC-managed listed entities.

Shares of ASX-listed Sigma were suspended on Wednesday ahead of an announcement to the market regarding the overall deal, which could come as soon as this week.

Sigma is raising $350m through investment bank Goldman Sachs that would be used for working capital, amid speculation the group is moving to stitch up the deal with Chemist Warehouse.

Sigma entered into a $3bn supply deal with Chemist Warehouse in August, cementing commercial links between the two healthcare companies. Comment has been sought from Chemist Warehouse and Sigma.

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

Chemist Warehouse initially mooted the idea of a listing in late 2020 and hired Rothschild to prepare the business for the float. That followed earlier speculation Perth-based conglomerate Wesfarmers was considering an acquisition.

Pharmacy operators such as Chemist Warehouse and Sigma are faces growing regulatory pressures, including planned changes to dispensing rules that threaten to cut revenue.

CW Group, which is controlled by the Chemist Warehouse founders, made a net profit of $302m for the year to June, down 22 per cent from the $385m it made a year earlier.

However, revenue reached $3.09bn compared to $2.99bn in 2022 as the company continued with new Chemist Warehouse store openings in New Zealand, China and Ireland.

According to the company’s latest financial report lodged with the Australian Securities and Investments Commission (ASIC), CW Group paid out dividends to shareholders of $264m this year compared to $155m the previous year. According to the report to ASIC, the five-year deal with Sigma included purchase commitments in the first year of $3bn.

Chemist Warehouse, which opened its first store in Melbourne in 2000, now operates over 500 stores across Australia, employing more than 17,000 people.

According to IBISWorld, the company is the third-biggest pharmacy operator in terms of revenue, holding 12.9 per cent of the market behind Sigma and EBOS, which control 14.2 per cent and 13.9 per cent respectively.

IBISWorld said the company’s revenue growth was below the industry average as it struggled to keep pace with competitors.

“Competitive forces have increasingly polarised the industry into small, high-service pharmacies that offer allied preventive and primary healthcare services and large, high-volume, low-margin pharmacies that compete on price,” IBISWorld said.

Chemist Warehouse is seeking new revenue streams, announcing in August an agreement with Queensland health entrepreneurs Cathie Reid and Stuart Giles to launch a national network of hospital-based pharmacies.

IBISWorld said the industry remained under pressure amid reforms to the Pharmaceutical Benefits Scheme (PBS), through which the federal government subsidises the cost of approved medicines.

IBISWorld said the staged introduction of 60-day dispensing measures for 325 PBS medicines will cut dispensing revenue and push pharmacies to more service-based models.

“This may include new funding models which give pharmacists a greater clinical role in primary healthcare settings,” IBISWorld said.

The number of scripts dispensed will be lower in 2023-24 following the staged introduction of 60-day dispensing. Under the proposed changes, a patient can now receive a two-month supply of medicine as opposed to a one-month supply, significantly reducing the number of times per year they need to visit their local community pharmacy.