Own Sigma shares? Everything you need to know about the 'transformational' $8.8b merger with Chemist Warehouse

Here's what you need to know about this mega merger.

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Sigma Healthcare Ltd (ASX: SIG) shares won't be returning from its suspension as planned on Monday.

That's because the pharmacy chain operator has extended its voluntary suspension until Wednesday.

Why are Sigma shares suspended?

The company's shares have been suspended while it raises funds to support the proposed merger with Chemist Warehouse Group.

According to the release, the two parties have agreed to a "transformational merger" that will create a leading healthcare wholesaler, distributor, and retail pharmacy franchisor, MergeCo. It will have a market capitalisation of $8.8 billion, compared to Sigma's current market capitalisation of $800 million.

Post completion of the proposed merger, the MergeCo will have aggregate annual historical earnings before interest and tax (EBIT) of over $495 million before synergies and a larger and more diversified earnings base.

Speaking of synergies, management expects the deal to result in annual cost synergies of $60 million being realised four years post completion of the proposed merger. There's also potential for additional synergies and flow-on benefits to franchisees.

Leading MergeCo will be Sigma's Michael Sammells as its independent chair and Vikesh Ramsunder as its CEO. Chemist Warehouse's CFO, Mark Davis, is expected to take the same role for MergeCo.

However, as you would expect due to its size, Chemist Warehouse's shareholders will own the vast majority of MergeCo. They will hold 85.75% and Sigma shareholders will hold the balance upon completion.

Management highlights that MergeCo is expected to have total free float of ~47% post completion, resulting in a free float market capitalisation of $4.1 billion. As a result, MergeCo is expected to be eligible for inclusion in the S&P/ASX200 index at the next quarterly rebalance. It could even be within the range for S&P/ASX 100 index inclusion.

Capital raising

To support the proposed merger, Sigma is raising $400 million via a pro-rata accelerated non-renounceable entitlement offer.

These funds will be offered at 70 cents per new Sigma share, which represents an 8.2% discount to its last close price.

This will see approximately 572.6 million new Sigma ordinary shares issued, which is the equivalent of approximately 54.1% of existing shares on issue.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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