Chemist Warehouse is merging with its supplier in deal that will create an ASX-listed retail giant with a market valuation estimated at $8.8 billion.

Sigma Healthcare will pay $700 million in cash and enough shares so that shareholders of the privately held pharmacy chain own 85.75 per cent of the merged group, Sigma announced on Monday.

The deal could be considered a backdoor listing for Chemist Warehouse Group, a 600-store chain founded by the Gance and Verrocchi families in Melbourne about 50 years ago.

With an estimated $8.8 billion market capitalisation, the combined company will be among Australia’s 100 biggest and easily eligible for the ASX200.

Sigma chairman Michael Sammells called the merger a step-change for his company, unlocking efficiencies, synergies and growth opportunities.

“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,” he said.

He said the proposal would push both companies into a “transformational and compelling” direction.

“This is a rare opportunity to combine the core competencies of two strong healthcare businesses,” he said.

Chemist Warehouse Group chairman Jack Gance said the deal would combine Chemist Warehouse’s retailing and marketing capabilities and Sigma’s state-of-the-art distribution infrastructure and logistics capabilities.

CWG founders Mario Verrocchi and Gance and his brother Sam have agreed to an escrow arrangement for their roughly 49 per cent combined stake in Chemist Warehouse Group.

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

The proposal requires the approval of the Australian Competition and Consumer Commission and of New Zealand’s Overseas Investment Office. Shareholders in Sigma and Chemist Warehouse will also get to vote on the deal.

-with AAP