Sigma waves white flag in battle for Priceline owner, Australian Pharmaceutical Industries

Sigma is still looking for growth opportunities after withdrawing its takeover offer for API, leaving retail conglomerate Wesfarmers as the sole bidder.

Sigma Chairman Ray Gunston said the company’s proposed takeover of API was a “nice to have, not a must have”. Stuart McEvoy/The Australian.

Australia’s biggest pharmaceutical distributor, Sigma, has withdrawn its bid for smaller rival Australian Pharmaceutical Industries, with chairman Ray Gunston declaring the acquisition was not a “must have”.

The withdrawal follows retail conglomerate Wesfarmers securing a near 20 per cent stake in API — a move seen as blocking Sigma — as well as Sigma’s biggest shareholder voicing strong opposition to the takeover.

“It was sort of nice to have, not a must have,” Mr Gunston said.

“That led to the decision we’ve made now, and having made that decision, we just needed to advise people, so it’s a variety of bits and pieces and machinations within a transaction.”

But Mr Gunston did not rule out exploring further mergers and acquisitions. While it missed on API, which owns Priceline Pharmacy, he said there would be other opportunities to grow Sigma’s portfolio of brands, which include Amcal and Guardian.

Mr Gunston said the business was looking forward to the arrival of its new chief executive, Vikesh Ramsunder, who will join the company in February after running South Africa’s Clicks group, which owns brands including The Body Shop, GNC and Claire’s.

“In terms of this (API) transaction, it was an option for us, but we’ve got exciting times ahead. The focus (now) is really around growing off the base of what we’ve been doing and looking to grow through M&A and/or organic growth, which our new CEO is quite excited about.

“He’s got a very strong retail focus.”

While the API board said Sigma’s cash and scrip bid — worth about $773m, or $1.57 a share at the time it made its offer — was more favourable than Wesfarmers’s all cash offer of $1.55, it did not label it superior. This allowed Wesfarmers to pull the trigger on acquiring Washington H. Soul Pattinson’s 19.3 per cent stake in API last month.

It followed Sigma’s biggest shareholder criticising Sigma’s proposal to take over API. Simon Mawhinney of Allan Gray, which owns 10.1 per cent of Sigma, said the deal did not make sense, soon after Sigma lobbed its bid in September.

“I think it’s a completely value destroying transaction,” Mr Mawhinney said at the time.

“Only two years ago, a similar transaction was initiated in reverse, where API sought to merge with Sigma shareholders, and actually the terms of that deal would have been more favourable for Sigma shareholders.

API initially courted Sigma two years ago with a $727m takeover bid, which Sigma chief executive Mark Hooper firmly rejected, declaring he could deliver better value for shareholders by allowing him to pursue his growth strategy.

Mr Gunston said he had taken on board Mr Mawhinney’s feedback but Sigma’s decision to withdraw its proposal was also based on other factors.

“We always take on board what shareholders tell us and we listen. But we had a lot of shareholder support for making the offer.

“After further assessment, and in the context of the competitive bid process with its changing transaction and economic considerations, Sigma has made the decision not to proceed with this current proposal.

“Sigma remains confident of our growth prospects without a merger with API and the board and management have continued to focus on longer term growth in our core operations.”

Sigma’s shares closed 1.8 per cent higher at 56c, compared with a 0.4 per cent gain across the broader sharemarket.