Sigma Healthcare Ltd (ASX: SIG) shares have surged over the past two days as the company's proposed merger with Chemist Warehouse looks set to receive regulatory approval.
At the time of writing, Sigma shares are trading at $1.78, a more than 25% gain since the end of last week's session.
As investors gobble up Sigma shares in anticipation of the merger, let's take a look at the situation.
Sigma shares rally on merger news
Investors have been buying Sigma shares on the back of its potential merger with Chemist Warehouse.
As a reminder, Chemist Warehouse advised last year that it would merge with Sigma via a backdoor listing. The offer is for Sigma to buy all of Chemist Warehouse's shares and pay $700 million.
If it goes through, Chemist Warehouse will own more than 85% of the newly listed entity. In effect, it is trying to list on the ASX through the back door. Hence, a backdoor listing.
The merger is valued at a $8.8 billion deal and could reshape the pharmacy landscape in Australia.
So much so that The Australian Competition and Consumer Commission (ACCC) has been reviewing the merger.
The regulator has previously raised concerns about competition in the market, particularly regarding the impact on independent pharmacies supplied by Sigma.
However, Sigma has addressed these concerns by constructing a set of promises that are enforceable by the court.
These include ensuring that existing franchisees can terminate their agreements without penalties, safeguarding confidential data, and maintaining Sigma's role in the Commonwealth Government's Community Service Obligation for at least five years. Sigma shares have been in the green since this announcement.
The ACCC is now seeking feedback on these proposed undertakings. In a statement, it said:
While the ACCC is publicly consulting on this undertaking, this should not be interpreted to mean that this or any other form of undertaking will ultimately be accepted by the ACCC.
While a final decision is pending, the market's reaction to Sigma shares suggests that it will be approved.
What does this mean?
News of the merger isn't new and has been around for some time now. In March, the ACCC outlined its concerns with the deal, and commenced an informal review.
It published its statement of issues on the merger in June, having received further submissions up until August.
As of yesterday, it also began taking submissions on Sigma's proposed undertakings, designed to boost confidence in the merger and abate the ACCC's concerns.
The proposed date for the ACCC's findings is listed as November 7, so we'll have to wait until then to gauge what's next for the merger.
Foolish takeout
While the ACCC's final verdict is still pending, investors are buying Sigma shares in anticipation for the event.
Investors can expect to hear more on the ACCC's findings in the first week of November.
In the last 12 months, Sigma shares are up 77%.
