Sigma Healthcare has dropped legal action against Australian pharmacy chain Chemist Warehouse in favour of a negotiated settlement over a disputed wholesale supply agreement.

A short time ago, Sigma shares were up 8.7% to $0.935. Sigma shares fell in May by more than a quarter when the company announced the dispute.

Legal proceedings started in May after the privately-owned My Chemist/Chemist Warehouse Group, said to have national sales of about $2.7 billion, indicated it was going to source products from another wholesaler.

Sigma, which owns the Amcal and Guardian brands, maintains that My Chemist/Chemist Warehouse Group, under an agreement running to June 2019, is not entitled to acquire products from another wholesaler.

However, Sigma released a statement today saying it had entered a formal negotiation to seek a commercial resolution to the dispute.

“If a commercial resolution is not reached the parties have agreed to confidential and binding mediation and arbitration,” Sigma said.

“As a result of these developments, Sigma will now discontinue legal proceedings.”

Sigma has estimated that the dispute could cut earnings by between $5 million and $10 million a year.

And the company has said underlying EBIT (earnings before interest and taxes) this financial year could be up to 5% below last year.

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