By Michael Smith
Chemist Warehouse’s billionaire founders have sealed their pharmacy mega-merger with a $34 billion stockmarket debut which created Australia’s 22nd largest listed company and transformed long-serving franchisees into millionaires.
Co-founder Mario Verrocchi on Thursday urged the group’s hundreds of pharmacy franchisees to “stick around” for another five years as shares in the new company, trading as Sigma Healthcare, met high expectations to close 5.4 per cent higher and vaulted into the top 50.
The share issue, the biggest in Australia for years, has broken a drought in big initial public offerings and propelled the company into the ASX 50. It also puts Mr Verrocchi and co-founder brothers Jack and Sam Gance into the public spotlight after decades of running one of the country’s fastest-growing private retailers.
“After 50 years of toil, 50 years of grind, a bit of blood and sweat and tears, we’ve established ourselves as the leaders of this industry,” Mr Verrocchi said as he rang the ASX’s opening bell before a crowd of family and business partners in Sydney.
Chemist Warehouse’s listing was made possible by a reverse takeover of Sigma, which owns the Amcal and Discount Drug Stores, and took 19 months to clear competition hurdles in Australia’s tightly regulated pharmacy market. The co-founders and their families will control the bulk of the stock.
Mr Verrocchi, 67, said he had no plans to step back from running the business for at least another five years. “I’m not going anywhere, for the next five years I will chain myself to my desk,” he said. Sigma boss Vikesh Ramsunder remains as chief executive of the enlarged entity.
Jack Gance, who has a board seat on the new company, described plans to become a global pharmaceutical and retail giant. He said the company which has stores in New Zealand, Ireland, China and Dubai, was looking at the United States.
“With the strength of Sigma with their supply chain I think we can go pretty well anywhere. Obviously, the American market is one we are looking at. It is a very difficult market. The three players there are all doing very poorly,” Mr Gance told The Australian Financial Review.
Mr Verrocchi said there were ambitions to double Chemist Warehouse’s existing Australian network of 600 stores.
“If you look at Coles and Woolies they have 900 to 1000 retail spots, we would probably follow a similar projection,” he said.
However, both co-founders acknowledged Australia’s competition hurdles in the pharmacy sector and called for a regulatory overhaul.
“If we had the same market share in every state as we have in Victoria we would have 200 to 300 more stores. When we open a store we don’t cannibalise our other stores, we just grow the market. We get more consumers and they buy more,” Mr Gance said.
“I’d like to see market deregulation but it doesn’t matter as we work within the constraints.”
Index funds had been expected to pile into the stock, given its enlarged presence in the ASX 200, but Chemist Warehouse franchisees can now also free up liquidity by selling out. Hundreds of millions of dollars worth of combined Sigma and Chemist Warehouse shares changed hands from franchisees to fund managers and retail investors on the first day of trading.
“In the context of $12 billion worth of new shares issued to non-escrowed shareholders today, the stock is trading incredibly well on elevated trading volumes. Given how well telegraphed today was, it is hard to quantify how much positioning investors did ahead of it,” Wilson Asset Management senior investment analyst Sam Koch said.
“Longer term we’re excited about the store rollout opportunity for Chemist Warehouse, and resultant operating leverage, which we believe the market is under-appreciating.”
Mr Verrocchi and the Gance brothers will hold their shares in escrow, restricting them from selling until at least August 2025. The remaining 200 Chemist Warehouse shareholders will hold 37 per cent of the group and will be able to trade their stock freely.
The Gances are the sons of Polish parents who fled to Russia during World War II before moving to Paris and later Australia. In 1972, as pharmacy graduates, they combined their money to buy a pharmacy in Reservoir, in Melbourne’s north. Mr Verrocchi joined them as an intern in 1980.
The board of the new company met formally for the first time to nut out a more detailed integration and growth strategy. This will include capital management plans and cost savings. Competition rules prevented them from meeting until the deal was completed because they were rivals.
Chemist Warehouse last month reported $5.2 billion in revenue and $438 million in pre-tax profit for the six months to December 31. Analysts expect the company’s growth momentum to continue, with the company forecast to report a profit of more than $800 million this financial year.
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