$30bn valuation places Chemist Warehouse in the big leagues

The backdoor listing transaction between Chemist Warehouse and Sigma will go through on December 12. Picture: NCA NewsWire / Gaye Gerard

Chemist Warehouse and Sigma will be worth more than $30bn when their backdoor listing deal is finalised.

That’s close to supermarket giant Woolworths ($36bn) and more than Coles ($23bn).

Chemist Warehouse generates annual net profit of $700m yet Coles made $1.2bn. So why the huge valuation?

The reason is that as part of the deal no shares were placed on offer and, given its size, passive index funds will need to own the pharmacy giant.

They will be piling in and paying up for the opportunity because they will need to own it.

But what’s not yet proven is that the value will last, particularly when the individual pharmacy owners that have gained stock opt to sell down their interest when their escrow arrangements expire.

They will account for a large portion of shareholders.

Yet perhaps it will retain its major valuation, with the market pricing in a premium for its large growth prospects. Time will tell.

The Australian Competition & Consumer Commission gave the green light for the deal to proceed and the backdoor listing transaction will go through on December 12. It will be included in the ASX 100 index around March, or June at the latest. The ACCC clearance sent Sigma shares up 40 per cent last week.

Chemist Warehouse founders Jack and Sam Gance and Mario Verrocchi will emerge with huge shareholdings. Based on a $2.70 Sigma share price and with the original terms of the deal, the Gance brothers would have shares worth $8.32bn, The Australian reported last week.

Mr Verrocchi would have a shareholding worth about $6.96bn. Other shareholders of Chemist Warehouse, about 200 people potentially including other members of the Gance and Verrocchi families, would have about $11.5bn of shares.

Sigma announced the deal with the privately held Chemist Warehouse, effectively a reverse takeover, last year.

The Gance brothers and Mr Verrocchi are set to hold about 49 per cent of the combined entity’s shares, which will be subject to escrow conditions, and other non-escrowed Chemist Warehouse shareholders will have almost 37 per cent. The three founders also would take some money off the table as part of the deal, sharing $700m in cash.

The Gances and Mr Verrocchi have built Chemist Warehouse into a retail powerhouse, with sales of their private company CW Group Holdings – a major chunk of the Chemist Warehouse business – reaching almost $3.3bn in the 2024 financial year.

CW Group made a $541m net profit and paid its shareholders $365m in dividends, including $148m paid in September.

The Chemist Warehouse founders have long considered an initial public offering on the ASX, but Mr Verrocchi told The Australian last year the sheer cost of a transaction was an issue.

Its founders will prepare documents by the end of the year, including a scheme booklet, for Sigma shareholders to vote on the deal in the first half of 2025.

Additional reporting: John Stensholt