The proposed merger between the owners of the Priceline and Amcal pharmacy chains is off after Sigma Healthcare rebuffed an approach by its rival.

Amcal owner Sigma, which is restructuring after losing a contract to supply Chemist Warehouse, said on Wednesday that October’s cash-and-scrip approach by Australian Pharmaceuticals Industries had undervalued its long-term prospects.

Instead of responding with an increased offer, API questioned Sigma’s plans and said it would now decide what to do with the 12.85 per cent stake it bought late last year.

“The Sigma Board has chose 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,” API said.

Sigma said it agreed the tie-up could save the combined company $60 million a year through supply chain consolidation, but that a business review completed last month found $100 million in potential savings through cost-cutting as a stand-alone company.

It also said that a decline in API’s share price also meant the offer was worth 12 per cent less than when it was made in October.

The offer was worth about $727 million when it was made public in December.

API countered by saying the cost savings that Sigma was citing were uncertain and unclear, and would mostly be offset by revenue lost by Chemist Warehouse’s decision to take its business elsewhere.

It also pointed out its offer represented a 41.8 per cent premium to the average price of Sigma shares in the month before the offer was announced.

“API notes that very little information has been provided by Sigma in relation to its intended restructure,” API said.

Sigma shares slumped on the development, dropping 14 per cent to 52.5 cents by 1423 AEDT, their lowest since before the merger proposal was made public.

API shares were down 3.57 per cent, at $1.35.

Sigma is the owner of franchise brands Amcal, Chemist King, Discount Drugs and Guardian.

API owns the Priceline, Soul Pattinson and Pharmacist Advice brands.