Chemist Warehouse, Sigma agree to merger to create $8.8 billion titan

Chemist Warehouse and its proposed partner, Sigma Healthcare, are confident they will be able to work through any issues raised by the competition regulator about market concentration in the pharmacy sector as part of the groups’ $8.8 billion merger.

Chemist Warehouse and Sigma unveiled their long-awaited plans to list on the Australian Securities Exchange via a reverse listing through Sigma, which owns the Amcal brand and a successful medicine distribution business.

Chemist Warehouse will soon make its long-awaited arrival on the ASX.Credit: Eamon Gallagher

Chemist Warehouse’s shareholders will own 85.75 per cent of the newly merged entity once the deal is complete. The families of Chemist Warehouse’s billionaire founders Jack Gance and Mario Verrocchi will hold 49 per cent of the group, valuing their holding in the group in excess of $2 billion each. The families will also receive a $700 million cash payment as part of the deal. The major shareholders will have the vast bulk of their remaining shares escrowed until August 2026.

The deal was first revealed by this publication last week will also involve Sigma raising $400 million from shareholders to assist in providing liquidity to the newly merged group via a book build managed by Goldman Sachs Australia.

As part of the transaction, Gance and Verrocchi will join the combined group’s board, while Sigma’s chairman, Michael Sammells, and its chief executive, Vikesh Ramsunder, will remain in their roles.

The transaction is expected to attract significant scrutiny from the Australian Competition and Consumer Commission as Chemist Warehouse supplies about 600 pharmacy-led stores via franchise arrangements, while Sigma supports 340 pharmacies under its Amcal and Discount Drug Store brands.

‘Our story is one of evolution [rather] than revolution. Just look at our franchise network both in terms of dollars and numbers it has grown every single year, even during COVID.’

Mario Verrocchi, Chemist Warehouse co-founder

The ACCC said it would launch a public review of the deal once it had received formal submissions from the merging parties, while the two merging groups told analysts they had already engaged with the regulator on a preliminary basis. The transaction has already come under fire from the Pharmacy Guild of Australia, which urged the ACCC to urgently review the deal.

Damien Gance, Chemist Warehouse’s chief commercial officer and incoming executive director for the merged group, pushed back on concerns the ACCC might force the combined group to divest some stores to assuage concerns the deal could reduce competition in such a vital part of the consumer market.

“It’s worth pointing out that both Sigma and Chemist Warehouse are franchisors, we don’t actually own pharmacies, which are owned by independent proprietors who choose to engage with our franchise services,” he said.

Sigma boss Ramsunder added: “Of course, we wouldn’t be putting this forward to shareholders today if we didn’t believe there was a possibility of an approval. And we respect the work of the ACCC. We’ve done work with them before here at Sigma, and we’ll provide them all the information they need. So it’s too early to make assumptions on anything.”

Sigma chief executive Vikesh Ramsunder will run the combined group.

Since being founded in the Melbourne in 2000 by Gance and Verrocchi, Chemist Warehouse has grown into one of Australia’s most recognisable retail brands, with outlets across Australia as well as in New Zealand, Ireland and China. Chemist Warehouse and Sigma are well known to each other. Earlier this year, the two groups signed a key supply contract for Sigma to provide medicines to Chemist Warehouse estimated to be worth $3 billion a year.

Verrocchi delivered an impassioned pitch to investors on Monday alongside their new executive team at Sigma explaining Chemist Warehouse was taking a long-term view to its position in the market.

“We have a theory, if you want to be a truly world-class iconic retail brand, it will take 100 years, so we have a three-phase plan.”

Those phases included establishing the business within a local market as part of the first phase, expanding into overseas markets in the second stage, and building within those markets as part of the third phase.

“Our story is one of evolution [rather] than revolution. Just look at our franchise network both in terms of dollars and numbers it has grown every single year, even during COVID,” Verrocchi said.

“So after 23 years of Chemist Warehouse, and 43 years of pharmacy business, we find ourselves with 600-plus stores in our franchise network, retail sales of almost $8 billion by our franchisees, over 153 million consumer transactions.”

Damien Gance said the group – run by two very private families not used to courting the media – in planning the liquidity event considered the increased scrutiny that would come with being a listed entity.

“We’re going to have to be more open, transparent and we do so willingly because we understand that to continue to get to grow our business to get to the 100-year plan, that destination that Mario spoke about, requires more bench strength and some skill sets that we don’t have. And if it requires greater disclosure and greater transparency, that’s a reasonable cost for the success that we envisage this merged [company],” Gance said.

The new shares will be issued at 70 cents a share, representing an 8.2 per cent discount to Sigma’s last traded price.

With Jessica Yun

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