Merger cap limit, page-19

API could pay more for Sigma as shares fall

SCOTT MURDOCH FEBRUARY 10, 2019

Speculation is mounting that Australian Pharmaceutical Industries will be asked to put more money on the table to buy Sigma Healthcare.

But some say API shareholders are unlikely to be happy about stumping up more funds to buy Sigma.

Since API put forward a $727 million takeover bid for Sigma on October 11, API’s shares have fallen from about $1.62 to $1.32.

However, since the approach was announced in December, there has been little news out of Sigma’s camp on how things are progressing.

API’s major shareholder is Washington H Soul Pattinson, which has 19.3 per cent. The company is offering shareholders 0.31 API shares and 23c cash for each Sigma share.

When the deal was announced in December, the offer was worth about 72c per share or $728m, but now, with the fall in the API share price, the bid is worth around $639m or 63.6c per share.

It means that now, even if Sigma did agree to the current deal, API would have to offer up more of its shares to Sigma shareholders.

While API is currently trading at six times earnings, Sigma is trading at eight times.

Sigma is currently assessing its future, with consultant Accenture scrutinising the company and reporting to the board.

However, some believe the consultant will probably determine that Sigma is worth more and that API needs to put more money on the table, and as more time goes by with no announcement, it’s increasingly likely the bid will be rejected.

Sigma boss Mark Hooper is known to be committed to the business and not eager to give up his chief executive job.

Some think Sigma might turn around and bid for API.

Still, many are still uneasy about the risk of a merger between the two companies being rejected by the Australian Competition & Consumer Commission.

Meanwhile, fund manager Allan Gray Australia has been buying up more shares in Sigma after it offloaded its stock last year so that API could secure a 13 per cent holding in the company, with its current holding now around 9 per cent.

API’s bid was subject to various conditions, including due diligence, a unanimous board recommendation and approvals.