Sigma Healthcare (ASX:SIG) has turned down a merger offer from Australian Pharmaceuticals Industries (ASX:API), saying it stood to gain more if it continued operations as a standalone company.

Sigma chairman Brian Jamieson said he and the board had formed the view the merger was not in the best interests of shareholders.

“The board is confident that after thoroughly assessing the outlook of Sigma on a standalone basis, the current API proposal does not reflect the long-term prospects and value inherent in Sigma having regard to the reset cost base of the business and our own growth agenda,” he said.

API released a statement shortly after lunch, saying it would reconsider its shareholding in Sigma, and casted doubt on Sigma’s claims.

“The Sigma board has chosen a path to restructure its significantly downsized business, rather than pursue a merger to create a future that benefits consumers, pharmacists and both sets of shareholders,” it said.

“Based on Sigma’s publicly disclosed earnings guidance, it is clear that a substantial portion of the claimed $100m cost savings will be offset by lost Chemist Warehouse revenue.”

API, which owns the Priceline chain of pharmacies, quietly lobbed a $727 million bid for Sigma back in October, though it was not announced publicly until December, when API upped its shareholding in Sigma to 13 per cent.

API believed a merged business would boost support for community pharmacists while providing scale and volume. Sigma replied that it would consider the offer, but would first complete a business-wide review of its future potential as a standalone company.

It came on the back of Sigma losing its largest customer, Chemist Warehouse, to EBOS Group. Sales of pharmaceutical products to Chemist Warehouse were responsible for 42 per cent of Sigma revenues.

Sigma (ASX:SIG) and API (ASX:API) shares in the past six months.

But Sigma said shareholders should be buoyed by the cost savings of losing that deal.

“A business review undertaken by Sigma in conjunction with Accenture identified over $100 million annual cost savings post the expiration of the MyChemist/Chemist Warehouse (MC/CW) contract, with potential for further upside to be achieved,” it said.

“The working capital release of around $300 million from the MC/CW contract is expected to be deployed into future growth opportunities for Sigma, creating additional value for Sigma shareholders.”

API is yet to respond.