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Why the Sigma Healthcare share price tumbled 8% lower today

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The Sigma Healthcare Ltd (ASX: SIG) share price is starting the week deep in the red.

In morning trade the pharmacy chain operator and distributor’s shares are down 8% to 60.7 cents.

Why is the Sigma Healthcare share price sinking lower today?

The Sigma Healthcare share price has come under pressure today after rival Australian Pharmaceutical Industries Ltd (ASX: API) sold off its shareholding in the company.

The operator of Priceline, Soul Pattinson Chemist, and Pharmacist Advice built up a sizeable shareholding in Sigma Healthcare in 2018 ahead of proposing a merger of the two companies.

At the time, Australian Pharmaceutical Industries’ chairman, Mark Smith, stated the board’s belief that “a merger is the best opportunity to deliver significant benefits to both groups of shareholders, pharmacists and customers.”

“A combined entity would create greater efficiencies in the wholesaling business to the ongoing benefit of all shareholders. This, in turn, would enable the combined business to provide greater assistance to pharmacists as they respond to current regulatory impacts and increasing retail competition, enabling a stronger, viable community pharmacy industry,” Mr Smith added.

However, Sigma wasn’t as open to the proposal as it was hoping. The deal ultimately fell through after the Sigma board concluded that it was not in the best interests of shareholders.

This left Australian Pharmaceutical Industries holding a whopping 137,264,592 shares of its rival.

Share sale.

With merger talks now firmly in the past and both companies intent on going their own way, Australian Pharmaceutical Industries has sold its entire shareholding.

No price details were provided. However, on Friday the AFR was reporting that Blue Ocean Equities was offering institutional investors Sigma shares at 60 cents. This represents a discount of just over 9% to the last close price.

Chairman, Mark Smith, advised that “the Board had decided to sell its Sigma shareholding now because the strategic and commercial fundamentals that made the merger a compelling proposition for both sets of shareholders have significantly diminished.”

He added: “The merger proposal was one option to create value. Selling our Sigma shares will allow API to further accelerate its focus on its portfolio of businesses and our board remains confident that the combination of our Pharmacy Distribution, Priceline Pharmacy, Clear Skincare and Consumer Brands businesses will deliver sustained shareholder value in the coming years.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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