JTSogz, I am going to call the major catalyst the "Chemist...

JTSogz, I am going to call the major catalyst the "Chemist Warehouse Effect" (CW Effect).

The incredible success of Chemist Warehouse in terms of expansion and this taking very significant market share away from the traditional pharmacy groups (controlled principally by Symbion, API, & Sigma) has reached a stage where we are very close to seeing the major wholesalers Symbion (EBOS), API and Sigma really step up strategies to gain back some market momentum and strength. Sigma has a lot to answer for in terms of its generous credit policy towards CW which facilitated such a rapid expansion. It effectively stocked their new pharmacies free of charge with CW able to only eventually pay for stock out of the profits from several stock turns. At the same time this was effectively cannibalising market share from their own group pharmacies. You might think that the recent indications that CW are playing hard ball to gain a better exclusive supply contract from wholesalers is bad news for Sigma. Certainly the market did with the Sigma/CW dispute causing the share price to crash from $1.20 approx.

Ironically I think CW may have now overplayed their hand. They have not won many friends in the industry and there is a litany of companies who have been good business partners only some would think to be "harshly treated " (including Sigma and a company that I have an association with). Now CW are such a serious competitor to the other principal groups the effect will be to see some interesting business responses from the major wholesalers. Despite EBOS saying they will look at striking a deal with CW, I doubt they or the others will want to (on favourable terms) because of their "responsibility" to their own groups. CW may then be forced to set up their own distribution centres because I don't believe any other distributor is set up to supply a full range to CW nationally.

The CW Effect has seen the wide adoption of the discount model by others in response to competitive pressure. This at the same time as price disclosure policy has seen a reduction in generic prices and dollar margins.

Also I believe the CW Effect in terms of its rapid evolution and the apparent general "quasi corporatisation" of pharmacy reduces the argument to keep pharmacy ownership out of the hands of Coles and Woollies.

All the above thoughts coupled with the potential rationalisation of pharmacy numbers must be having the boards of our major wholesalers thinking hard about what the next five years will bring unless they make some hard strategic decisions. Among the possible choices will be of course that of a merger or acquisition . It is my thought that API and Sigma would re-look at a possible merger, however EBOS would see this as a risk and may be the more proactive entity and be looking closely at their own options. EBOS has a far greater financial might for acquisition.

So I am of the opinion that the market is seeing the current weakness in the Sigma share price (even at todays impressive close) as an opportunity. The CW Effect and pharmacy environment which is generally indicating the need for rationalisation increases the potential for a takeover play for Sigma.