Chemist Warehouse will become a publicly traded company through a merger with Sigma Healthcare, creating a retailing giant and unlocking billions of dollars for the founders of the discount pharmacy chain.
Chemist Warehouse founders Mario Verrocchi and Jack Gance will hold executive positions in the new entity, with the value of their family interests rising to about $5bn, according to details released to the stock exchange on Monday.
Gance and Verrochi founded Chemist Warehouse in 2000 with one Melbourne store. The company expanded to become Australia’s largest pharmacy retailer, and will become even bigger, given Sigma operates its own franchised pharmacy network.
“The combination of CWG’s retailing and marketing capabilities and Sigma’s state-of-the-art distribution network and logistics capabilities presents a unique opportunity for CWG and Sigma shareholders,” Gance said.
The Gance and Verrochi families are subject to arrangements that would prohibit them from immediately selling their shares.
The deal, if approved by shareholders and regulators, would unlock $700m in cash for Chemist Warehouse owners. Verrocchi and Gance family members would also have a 49% share in the merged entity.
The transaction resembles a reverse listing, where the privately-owned Chemist Warehouse becomes a publicly-traded company by merging with a smaller listed company, Sigma, whose retail brands include Amcal.
Sigma’s board has recommended shareholders vote in favour of the deal, which would create a company with a market capitalisation of about $8.8bn. The merged company would be one of Australia’s 100 biggest listed companies.
The proposed deal could face a significant regulatory hurdle given the combined business would be a leading participant in all parts of the pharmaceutical supply chain, from wholesale distribution to customer-facing sales.
Chemist Warehouse operates a network of about 600 stores, while Sigma also has franchised pharmacies and wholesale pharmaceutical operations. It supplies more than 1,000 aligned pharmacies, including 340 under the Amcal and Discount Drug Stores brands.
The stock exchange announcement notes the merger will require Australian Competition and Consumer Commission approval.
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The Pharmacy Guild raised concerns last week over the proposed deal due to the potential impact on competition as well as community ownership of pharmacies.
The guild said the community pharmacy model had guaranteed patients access to vital and life-saving medications without putting profit over patient care, which it said relied on a limit on the number of pharmacies a company can own.
Chemist Warehouse, which also operates in New Zealand, China and Ireland, upended the traditional pharmacy business model by generating the bulk of sales from the items it displays at the front of stores.
Its network derives almost 70% of revenue from the sale of cosmetics, vitamins, sunscreen, fragrances and other nonprescription items, according to documents lodged on the ASX.
This compares with an average of 27% of revenue generated from these items at rival stores.