In this briefing:
1. API Tilts at Sigma Healthcare: Expect More
Friday morning, wholesale and retail pharmacy health/beauty and lifestyle products operator Australian Pharmaceutical Industries (API AU) announced that it had become a substantial shareholder in wholesale and retail pharmacy health/beauty and lifestyle products operator Sigma Healthcare Ltd (SIG AU) by purchasing 137.26mm shares. Roughly 52.5mm of those shares were purchased between A$0.53 and A$0.63/share between 5 September (the day before the half-year report came out) and 10 October and the other ~84.8mm shares were purchased Thursday 13 December at A$0.64, bringing the total position to 12.95%.
It turns out that on 11 October, API made an indicative non-binding proposal to Sigma through a Scheme of Arrangement whereby Sigma shareholders would receive 0.31 shares of API and A$0.23 in cash for each share of Sigma held.
That offer is now made public.
Worth A$0.686 per Sigma share as of announcement, the Indicative Proposal comes at a 69% premium to the close of trading on 13 December and a 46.8% premium to the one-month average. It is, however, a 10% premium to where API was buying shares on market in September and October. API shares were up a further 8+% on Friday, lifting terms further.
Sigma traded up 43% Friday to A$0.58 against terms which are now ~A$0.723, so there is still 24.7% upside to terms and there might be further upside on further synergy bullishness.
The Scheme Proposal is based on publicly available information, is subject to a number of conditions precedent, ACCC approval, due diligence, and confirmation of what they see as cost synergies.
This deal is somewhat opportunistic after recent troubles at Sigma, and I expect the ongoing strategic review at Sigma (assisted by Accenture) will come out saying that on a standalone basis after fixing itself up it is worth more than where it has been trading. The question is whether a merger would accelerate both the internal efforts at Sigma and improve competitiveness through cost synergies.
Allan Gray was the seller of the 8% stake yesterday it appears. The CIO is quoted in the API announcement as saying they support consolidation in the pharmaceutical wholesaling sector and are “positively disposed to efforts to expedite this consolidation.” They support it to such an extent that they decided to cut in half their participation in the economics of such efforts at expediting this consolidation.
First time indicative opportunistic offers in Australia can be an arbitrageurs’ graveyard.
