Australian Pharmaceutical Industries (ASX: API) has become the belle of the pharmacy industry with Sigma Healthcare Limited (ASX: SIG) launching a late unsolicited offer to acquire API at a premium to the current offer on the table from retail giant Wesfarmers (ASX: WES). 

The bid from Sigma is a surprising one given Wesfarmers submitted their first offer for API on 12 July 2021, which valued API shares at $1.38 each. 

This offer was then revised to $1.55 per share on 16 September 2021 which would represent a 37% premium on API’s one-month VWAP of $1.133 per share to 9 July 2021 as an all-cash offer. 

Throwing their hat in the ring, Sigma’s offer values API shares even higher at $1.57 each but would be a combination of cash and SIG shares. Under the terms of the Sigma Indicative Proposal, API shareholders would receive $0.35 in cash and 2.05 Sigma shares for each API share, which implies a value of $1.57 per API share based on Sigma’s closing price of $0.595 per share on 24 September 2021.

In their statement to the ASX this morning, API has instructed shareholders not to take any action with their holdings whole the Company further assesses the merit behind Sigma’s unsolicited non-binding and conditional proposal. 

In the event that the Sigma offer were to be accepted, API shareholders would own 48% of the merged company, potentially offering further growth potential than Wesfarmers’ all-cash offer. 

While the Wesfarmers offer would bring major firepower through their massive network of retail intelligence, the Sigma offer presents synergies that shareholders could realise post-acquisition. 

Unlike Wesfarmers which has no current presence in the pharmacy market and was bidding on API as their entry vehicle, Sigma is already the leader network operator in the country with brands including Amcal, WholeLife,Guardian, PharmaSave and more. 

Sigma also has a substantial supply chain business which provides support services to their network of pharmacies and the addition of API’s portfolio would further strengthen their position in the market, but would be subject to ACCC approval. 

For the Half Year ended 30 June 2021, Sigma Healthcare reported a 5.5% increase in revenue to $1.7 billion and a 14.7% increase in underlying EBITDA to $39.2m. This included a 13.6% increase in sales from its wholesale business where Sigma is a supplier to Chemist Warehouse. 

With the addition of Priceline and API’s network of pharmacies, the upside of Sigma’s offer may seem more attractive than an all-cash bid from Wesfarmers but further revisions to bids could be on the horizon with Sigma having now been allowed to commence their due diligence vetting to meet the conditional requirements of their proposal. 

The Sigma offer values Australian Pharmaceutical Industries at $773.3m.