Australian pharmaceutical company Sigma Healthcare has agreed to merge with Chemist Warehouse Group (CWG) to create an A$8.8bn ($5.8bn) combined healthcare company.

CWG is a retail pharmacy franchisor with a retail network of around 600 stores worldwide, primarily operating under the Chemist Warehouse brand.

The merger will combine Sigma’s distribution infrastructure and CWG’s retailing know-how to create a full-service wholesaler, distributor, and retail pharmacy franchisor.

Under the terms of the merger implementation agreement (MIA), Sigma will acquire CWG in exchange for Sigma shares and $700m cash consideration.

Upon completion, CWG shareholders will obtain an 85.75% stake and Sigma shareholders a 14.25% interest in the combined company, MergeCo.

Sigma chairman Michael Sammells said: “With Sigma having had a commercial relationship with CWG and its founders spanning more than 40 years, we are excited by the efficiencies, synergies and growth opportunities that we anticipate being unlocked through the merger of the two complementary businesses.

“The combined group will have extensive capabilities and expertise to benefit franchisees and customers, including through more brand choice, products and services and expanded marketing capabilities.”

The proposed merger will be closed in the second half of 2024, subject to approval by Australia’s competition regulator, Court approval, and approval by the CWG and Sigma shareholders.

Upon closing, MergeCo Board will comprise four independent directors, four CWG representatives and Vikesh Ramsunder as managing director.

CWG CEO and managing director Mario Verrocchi will continue in the same position and will also be appointed to the MergeCo Board as an executive director.

In addition to the acquisition, Sigma will undertake a fully underwritten non-renounceable entitlement offer at a price of A$0.7 per share, to raise around $400m.

The proceeds will be used to support the increased working capital required to implement the Chemist Warehouse supply contract and progress business growth initiatives.

Sigma has secured a commitment from Australian lenders ANZ and NAB for a new $1bn debt facility to fund the cash consideration of the transaction and to refinance existing CWG debt.

CWG chairman Jack Gance said: “The combination of CWG’s retailing and marketing capabilities and Sigma’s state-of-the-art distribution infrastructure and logistics capabilities presents a unique opportunity for both CWG and Sigma shareholders.

“We look forward to building the next chapter of CWG’s success for the benefit of our customers, staff, franchisees and shareholders.”