Sigma investor: Board must 'live and die' by decision to reject API
Advertisement

Sigma investor: Board must 'live and die' by decision to reject API

Sigma Healthcare's largest independent investor says the company's board must "live and die" by its decision to reject an indicative takeover offer from rival Australian Pharmaceutical Industries (API) on Wednesday.

API has walked away from its bid after Sigma said its board, having completed a detailed assessment of API’s offer, concluded that the company’s future as a stand-alone business offers better opportunities for investors.

Sigma can go it alone, says chairman Brian Jamieson.

Sigma can go it alone, says chairman Brian Jamieson. Credit:Glenn Hunt

“The current API proposal does not reflect the long-term prospects and value inherent in Sigma having regard to the reset cost base of the business and our own growth agenda,” said Sigma chairman Brian Jamieson in a statement to the ASX on Wednesday.

API replied with its own statement around midday, stating that, in light of Sigma's decision, it is clear its proposal "is unable to be taken forward".

Advertisement

The suitor said Sigma had rejected a "highly synergistic" merger proposal for a "uncertain restructure" of its business. It highlighted the significance of the expected $60 million worth of cost benefits from the merger in the context of the two separate business generating $132 million worth of earnings before interest and tax for the current financial year.

API said it would review its 13 per cent stake in Sigma, which it had acquired just prior to the offer being announced in October last year. This news sent the share price diving below 50¢ before closing 12 per cent lower at 53.5¢.

Sigma chief executive Mark Hooper said the decision had the support of the company's major shareholders, but Allan Gray's Simon Mawhinney warned the onus was now on the company to deliver.

He said Sigma had made a call and assessed that rejecting the deal was in the best long-term interest of investors - “and that’s fine, but they need to live and die by that decision".

Sigma's board must "live and die" by its decision to reject the API offer, says Allan Gray's Simon Mawhinney.

Sigma's board must "live and die" by its decision to reject the API offer, says Allan Gray's Simon Mawhinney.Credit:Brook Mitchell

Allan Gray played a critical role in the failed deal when it sold an 8 per cent stake in Sigma to API ahead of its bid, and signalled its support for the proposed merger.

"We have previously stated that we are supportive of consolidation in the pharmaceutical wholesaling sector and are positively disposed to efforts to expedite its consolidation," the fund manager said in a prepared statement when the proposal was announced in October.

Loading

API acquired 84.76 million shares from Allan Gray at 64¢ each.

On Wednesday, Mr Hooper said Sigma understands the logic around the consolidation argument for merging its operations with API, but "ultimately this comes down to value".

He said the board was aware that after knocking back API, the company will now have to deliver on its standalone plan: "We've got no problem with that."

The Sigma board cited a number of factors for its decision to turn down the deal, including the outcome of the company's strategic review and the fall in the value of API's cash and scrip offer since it was announced last October.

The deal also faced a big hurdle with the competition regulator due to Sigma and API's significant marketshare in the pharmaceutical wholesale sector.

Sigma reports its full-year results next week.

Colin Kruger is a business reporter. He joined the Sydney Morning Herald in 1999 as its technology editor. Other roles have included the Herald's deputy business editor and online business editor.

Search ASX quotes

Most Viewed in Business

Loading
Advertisement