It’s over for API-Sigma merger


Sigma’s Board has rejected the API proposal to take it over as not in the best interest of Sigma shareholders

The non-binding indicative proposal from API to acquire all Sigma’s shares was sent in December 2018 and since January 2019, the two wholesalers have engaged in a limited form of due diligence, focused on the synergy and regulatory workstreams.

This due diligence has confirmed that there was a sound basis for the $60 million per annum run-rate synergies assumption (anticipated by the third year following the merger) and that a large portion of these synergies would come from consolidating the supply chain to Sigma-owned warehouses, Sigma said in a statement; however significant further work was required on the regulatory workstream.

On 4 March 2019 API reconfirmed its non-binding indicative proposal on essentially the same terms as in October, with a waiver of the condition precedent relating to confirmation of cost synergies. The API Proposal remains highly conditional and subject to regulatory approvals including any required competition approvals, says Sigma.

Sigma has since completed and validated a major business transformation review identifying more than $100 million in cost efficiencies, which Sigma is capable of delivering as a standalone business over the next 18 to 24 months, it says.

Following its detailed assessment of API’s proposal, the Board of Sigma says that given its assessment of Sigma as a standalone business, the API proposal is not in the best interest of Sigma’s shareholders.

“The Board is confident that after thoroughly assessing the outlook of Sigma on a standalone basis, the current API proposal does not reflect the long-term prospects and value inherent in Sigma having regard to the reset cost base of the business and our own growth agenda,” said Sigma chairman Brian Jamieson.

“Therefore, after considering the API Proposal in detail, we believe it is not in the best interests of our shareholders.”

As well as the assessment of Sigma as a standalone, factors influencing the decision also included the fact that since API sent its October 2018 proposal, its share price has declined by more than 15%.

This implies a value for the API proposal of 67 cents per Sigma share at close on 12 March 2019 – which would be a 12% decline in offer value to shareholders, Sigma observed.

Sigma also said that the returns to Sigma shareholders under the API Proposal would depend on ACCC approval of the transaction, the successful integration of the two businesses, capturing the proposed synergy benefits, as well as the continued trading performance of both businesses and market trading valuation metrics… implying an execution risk.

API issued a statement in which it said its proposal had represented a “highly attractive premium of 41.8% relative to the undisturbed volume weighted average price of Sigma shares in the one month prior to the 14 December 2018 announcement of the NBIO proposal”.

It said it has closed its data room and is now reviewing its shareholding in Sigma, which it acquired in the latter part of 2018.

The decision comes days after Sigma CEO and managing director Mark Hooper told the Guild’s APP conference that he hoped for a swift conclusion to the proposed merger.

“Hopefully it will be resolved one way or another in the not too distant future so we can all get on with life,” he told the conference.

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