Australian Pharmaceutical Industries (ASX: API) has offered its rival Sigma Healthcare (ASX: SIG) $727 million to buy the entire business.
API is hoping to consolidate its position in the face of increased regulatory processes and a more competitive market.
The $727 million takeover represents a premium of 69.4 per cent ot Sigma's last closing price of 40.5 cents.
API already owns nearly 13 per cent of Sigma.
Chairman Mark Smith says the deal will allow API to grow further.
"In the face of slowing revenue growth, projected margin and revenue pressures due to government policy and also increased competition, the managed business would provide scale and volume," says Smith.
"The real benefit of the proposed merger comes from infrastructure and back-office cost savings."
The company intends to retain both companies' retail brands after the deal. API's brand include Priceline Pharmacy, Clear Skincare, Pharmacist Advice, Soul Pattinson Chemist, and Club Premium. Sigma's brands include Amcal+, Chemist King, Discount Drug Stores, Guardian and Pharma Save.
The deal is expected to immediately add to earnings per share and deliver annualised gross cost savings of $60 million by year three of the merger.
Business News Australia
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