The deal is hailed both as a rags-to-riches example of the Australian “battler” sentiment, and as a glaring example of how low-cost chains edge out legions of mom-and-pop pharmacies. It’s also a coming out, of sorts, for the trio who built the chain over decades while largely staying behind the scenes.
“Fifty years of toil, 50 years of grind, a bit of blood, sweat and tears and we have established ourselves as the leaders of this industry,” Verrocchi said at the securities exchange in Sydney on Thursday. “The suppliers know it, the customers definitely know it and the rest of the world – well they’re just about to find out.”
Shareholders and related parties who had gathered at the exchange cheered and drank Veuve Clicquot champagne as the bell rang to start trading in Sydney just after 10am this morning.
Vitamins and deodorant
The chain started with a lone pharmacy in northern Melbourne and is now a ubiquity in Australia – so famous that an episode of the nation’s hit kids animated series Bluey was set in a store. Legions flock to its bright-yellow storefronts to fill prescriptions cheaply, buy generic and discounted over-the-counter drugs, and browse its selection of nutritional supplements, toothpaste and other household goods that are stacked high around the stores.
Combined with Sigma, it’ll franchise or co-own more than 900 pharmacies in Australia, New Zealand and Ireland, and a handful in Dubai and China. It’ll also supply products to more than 3500 stores. Taken together, the two companies collected A$6.7b of revenue last year.
The Gance brothers, sons of Polish parents who fled during World War II and settled in Australia, both studied pharmacy at university. In 1972 they bought their first pharmacy. They later expanded and began co-ordinating their supply chain with other chemist stores. The strategy culminated with the creation of what would become Chemist Warehouse – a drug store franchise modelled on big-box retailers competing on price.
Helping them grow this concept was Verrocchi. After he graduated with a degree in pharmacy, the brothers hired him in 1980 because they’d opened a store in a neighbourhood full of Italian migrants and needed someone who knew the language, Verrocchi has said. The three will collectively own roughly 48% of the combined entity.
Family members of both Verrocchi and the Gances have been involved in the business. Taken together, the families owned or partly owned 180 of the chain’s Australian pharmacies at the end of last year.
“It was a family-and-friends business model,” said Helen Bird, a senior lecturer at Swinburne Law School in Melbourne who specialises in corporate governance. She said this helped the company navigate laws restricting how many pharmacies a single person could operate. (Chemist Warehouse hasn’t been accused of wrongdoing.)
Wealth creation
Thursday’s listing won’t just cement the fortunes of Verrocchi and the Gances. More than 100 shareholders have stakes worth between A$5m and A$25m, according to an analysis by proxy advisory firm Ownership Matters. Among them are executives and other long-time employees.
Sam Gance’s son Damien, who is Chemist Warehouse’s chief commercial officer and will be on the board of the combined company, holds a stake worth roughly $700m, filings show. Danielle Di Pilla, who’s a senior executive and a cousin of Verrocchi, has shares worth about $185m. She will also be a director.
Sigma, the other party in the transaction, was founded in 1912 by two Melbourne pharmacists and went public in 1999. It largely operated as a wholesaler before buying its first pharmacy franchiser in 1997.
Sigma chief executive Vikesh Ramsunder, who is now the chief executive of the combined entity, said there would be around A$60m in synergies between the two companies.
“It’s about trying to understand how we can make these brands work well together and ultimately service all of Australia,” he said in an interview with Bloomberg TV.
- Washington Post
