Chemist Warehouse top brass to remain in Sigma merger

Through direct ownership and franchisee partnerships, Chemist Warehouse has become one of the top retailers in Australia with more than 20,000 staff and more than 20 per cent market share, shaking up the pharmacy sector.

Chemist Warehouse is a high volume but low-margin business. Its shelves are stacked high with cheap perfumes, vitamins and make-up, while the dispensary sits in the back of the shop. It operates an opposite model to most pharmacies: it generated 70 per cent of its sales from front-of-shop goods, with the balance coming from dispensing drugs.

Two brands, one umbrella

The founders, who are notoriously private, have created a significant business but had been unable to monetise their shareholding and associated wealth. Owning shares in Sigma will allow them, along with family members and franchisees, the opportunity to sell. The businesses will come together under one umbrella, but still operate two brands.

A possible public float of Chemist Warehouse has been discussed for years but has never eventuated – perhaps given sky-high valuation expectations of the founders and changing equity market conditions.

Sigma shares were halted from trade on Wednesday after news leaked of the deal. The $810 million company’s shares last traded at 77¢ each.

On Friday, Sigma said in an ASX statement that discussions were ongoing, and it was not “presently in a position to make an announcement to the market with respect to the material transaction”.

Sigma is one of Australia’s largest pharmaceutical wholesalers which also has a network of independent and franchised pharmacies under the Amcal, Guardian, Discount Drug Stores and PharmaSave banners. It also operates contract logistics using its national distribution network.

Over the past four years, Sigma invested more than $300 million in its nine distribution centres and warehousing technology which manages 14,000 products and delivers over 220 million units per year to its customers.

It is preparing for the implementation of the new Chemist Warehouse contract, which starts July 1, after winning back the $2 billion supply deal in June from EBOS. This was an important milestone for Sigma as it allows it to increase its capacity utilisation and boosts margins.

Sigma in the past sought to merge with rival drug wholesaler and Priceline Pharmacy chain owner API, which is now owned by Wesfarmers.

The powerful Pharmacy Guild, which represents interests of independent pharmacies, has long looked to block supermarkets and other large corporations from entering the sector. The guild declined to comment further on Sunday after raising concerns about the transaction earlier in the week, saying it poses risks to competition and patient care.