Why Chemist Warehouse and Amcal join forces to create Australia’s largest pharmaceutical company

After months of speculation and years of failed deals, discount pharmaceutical giant Chemist Warehouse has struck a deal with Sigma Healthcare to create Australia’s largest pharmaceutical company.

From humble beginnings in Melbourne in 1972 before changing its name to Chemist Warehouse in 2000, the pharmacy franchise has gone from strength to strength, opening hundreds of stores across the country while remaining a privately held company worth thousands of millions of dollars.

Its founders have been the subject of several offers for the company over the years, but have now reached an agreement that will not only take the company public, but will substantially expand it to become one of the largest retail companies. large from Australia.

Here’s how the merger came together, why it’s so important in the Australian business landscape and what it means for Chemist Warehouse pharmacies across the country.

What’s happening with Chemist Warehouse?

On Monday morning, it was confirmed that Chemist Warehouse’s parent company, CW Group Holdings, had signed a merger agreement with Sigma Healthcare.

The deal would see Chemist Warehouse merge with Sigma Healthcare to create “a leading healthcare retail pharmacy wholesaler, distributor and franchisor.”

In other words, the deal would see these two companies join forces to create a giant in the pharmacy retail space, from product creation to in-store sales, with a total value of more than $8.8 billion.

That would not only make it the largest pharmacy brand in the country, but would also make it one of the largest publicly traded companies on the Australian Stock Exchange (ASX).

Whichever way you look at it, it’s a monumental deal for a company that started in 1972 in Melbourne before transforming into the retail giant we know today.

There are currently around 600 Chemist Warehouse stores in four countries, most of them in Australia, 42 in New Zealand and six in Ireland and China.

Additionally, Chemist Warehouse has 21 stores under the My Chemist brand and 17 Ultra Beauty stores located within select Chemist Warehouse stores.

Chemist Warehouse is also a co-owner of several brands it carries in its stores, including Bondi Protein Co, Goat Soap, Barely Intimate Skincare, Bambi Mini and supplement brand Wagner.

Chemist Warehouse is proud to be Australia’s cheapest pharmacy for medicines, vitamins and other related items.(ABC News: Four Corners)

What is Sigma Health?

You may not know their name, but they are a company behind many brands that you are probably familiar with and have purchased products from before, namely their drugstores.

Sigma owns four different retail pharmacy brands: Amcal, Discount Drug Stores, Guardian and PharmaSave.

There are around 400 pharmacies nationwide operating under those brands, but together Sigma operates another 800 pharmacies in Australia.

In addition, Sigma also has its own brands and private labels, including Amcal branded items, including pain relievers, lozenges, vitamins, and cold and flu tablets.

Sigma has stakes in specific brands sold in its stores, including Beauty Theory (which sells items such as bobby pins and hairbrushes) and Pharmacy Care (which sells skin care, pain relievers, baby products and health devices such as monitors blood pressure and thermometers).

Sigma also operates nine distribution centers in Australia and wholly owns three of them, as well as creating its own products, supplying them to other pharmacies and selling those same products in its own pharmacies across the country.

In other words, Sigma Healthcare is fully involved in the entire pharmaceutical process, from product creation to distribution, wholesale and retail stores.

Sigma Healthcare owns and operates Amcal and Guardian pharmacies, and produces its own products that it sells to other retailers.(Facebook: Sigma Health)

Why is this so important?

In short, it’s because he’s creating a huge corporate giant in Australia.

The merger of Sigma Healthcare and Chemist Warehouse will create a company worth more than $8.8 billion.

It also makes Sigma Healthcare a substantially larger player in the market. Right now, Sigma has a market capitalization of $810 million, but the deal increases its value almost 11 times.

But it’s not just the monetary value of the company that makes this so important: it would also make it a top 100 listed company on the ASX.

By comparison, the combination of the two companies will create a company as large as BlueScope Steel, Seek, TPG, Qantas and Treasury Wine Estates (which owns major Australian wine brands including Penfolds).

(To put it in context, BHP is the largest company listed on the ASX, with a market capitalization of almost $242 billion).

Chemist Warehouse has long been the subject of speculation about when it might become a publicly traded company.(ABC News: Patrick Rocca)

The merger is also a significant development in the corporate history of Chemist Warehouse, which has long been the subject of speculation about going public.

Chemist Warehouse was long considered to have two options when it came to becoming a publicly traded company: through an initial public offering (IPO) or a trade sale.

But when speculation rose again in June that Chemist Warehouse was looking to go public, a third option came into play: joining forces with Sigma Healthcare, which is already listed on the ASX. As Chemist Warehouse is the larger of the two companies, it would give them control of Sigma Healthcare and is considered a “backdoor” entry to the ASX.

At the same time, Chemist Warehouse signed a contract with Sigma that meant the healthcare company would supply it with Pharmaceutical Benefits Scheme (PBS) drugs and fast-moving consumer goods (FMCG) products for five years, starting from July 1st. 2024.

Sigma Healthcare and Chemist Warehouse have had a professional relationship for decades.(Facebook: Sigma Health)

When the deal was signedSigma estimated that total product sales to Chemist Warehouse would generate a minimum of $3 billion in revenue in the first year of the contract alone.

The two companies also have a long-standing business relationship spanning more than 40 years, Sigma President Michael Sammells told investors on Monday.

The other reason this merger is so important is that, combined, Chemist Warehouse and Sigma Healthcare will have more than 1,000 retail stores between them and 16 distribution centers in Australia and New Zealand.

That would not only make them the largest pharmaceutical group in the country, but it would make them one of the largest retail companies in Australia that can create its own brands and sell them in its own stores as well as to other pharmacies.

However, this is not the first time that Sigma has sought a pharmaceutical group with which to join forces. In 2021, it entered a takeover fight by outbidding Wesfarmers for pharmaceutical group API, owner of Priceline and Soul Pattinson Chemists.

Sigma’s deal with Chemist Warehouse will dwarf Priceline in terms of size, should the merger go through.(AAP: Paul Miller)

What does it mean for Chemist Warehouse stores?

Although the ownership structure of the two companies could change, that doesn’t mean it’s the end of the road for brick-and-mortar stores Chemist Warehouse and My Chemist, or the Amcal, Guardian, Discount Drug Store and PharmaSave stores operated by Sigma.

The merger between the two, presented to investors on Monday, shows that the brands will remain in their current form, as they were “complementary” in “broad market segments.”

In other words, the merger will create three levels of pharmacies that will not compete with each other: deep discount (Chemist Warehouse), full service (Amcal, My Chemist) and discount (Discount Drug Stores).

Amcal pharmacies will continue to operate as usual if the merger goes through.(ABC Great South: Paul Cook)

Combining the two companies outside of the retail space will mean that they will be able to scale up and produce their own private label items that they will be able to sell to generate more revenue, open more pharmacies and expand into other markets internationally.

As Sigma explained to investors on Monday, the merger will create a “full-service retail, distributor and wholesale pharmacy franchisor” that combines “state-of-the-art distribution infrastructure” with “leading retail know-how.”

A larger company also means there is a “more diversified profit base” and they can collectively save $60 million a year by streamlining their processes as there is some duplication at the moment.

Its wider network could also mean new franchisees coming on board to open additional Chemist Warehouse stores, so we could see more pharmacies open in the future.

When does the agreement become official?

So far, both Chemist Warehouse and Sigma have signed the deal, but it will have to pass a lot of regulatory checks and balances before it’s done and dusted.

The deal will need to be approved by the Australian Competition and Consumer Commission (ACCC), the Federal Court to ensure it complies with the Corporations Act, Chemist Warehouse shareholders and Sigma Healthcare investors, as well as possible approval from Overseas Investment from New Zealand. Office (OIO), as Chemist Warehouse has 42 stores across Tasmania.

If it clears those regulatory hurdles, the merger will be presented to Sigma shareholders, requiring a vote in favor of 75 percent or more.

Even if the merger is given the green light, it will be months before it comes to fruition.(ABC News: Lily Nothling)

Only after that happens will the deal be finalized, and Sigma told investors Monday morning that it expects all of that to happen and to be given the green light to merge sometime in the second half of 2024.

Once the merged company is listed on the ASX, investors will be able to buy and sell Chemist Warehouse shares, and the company will have to publicly report its profits by law.

But all of that takes time, so don’t expect anything to happen for several months while all the paperwork is sorted.