API says no to Wesfarmers


API Board unanimously concludes “undervalued” Wesfarmers offer is not in the best interest of shareholders

The board of leading pharmaceutical wholesaler API has rejected a takeover offer from retailing giant Wesfarmers.   

Wesfarmers, which numbers Bunnings, K Mart, Target and Officeworks among its many companies, announced the bid on Monday 12 July.

The “non-binding, indicative offer” to API’s board was to acquire 100% of API’s shares for $1.38 cash per share, “a 21 % premium to API’s last close price”, valuing the company at $687 million.

Washington H. Soul Pattinson (WHSP), which owns 19.3% of API’s share had “agreed to vote in favour of the Proposal and has granted a call option in respect of its API shares in favour of Wesfarmers,” the company said in a statement to the ASX.

A statement from API on Thursday 29 July said; “The Board has unanimously concluded that the Indicative Proposal undervalues API, is not compelling and is not in best interests of API shareholders.”

The Board noted that the offer implied a premium of 18.7% to the 3-month Volume Weighted Average Price – “significantly below the Australian market average for transactions of this nature.”

“Although the API share price has recently traded above the price offered in the Indicative Proposal, the Board recognises that the share price may trade below this level in the short term,” the API statement said.

“Nevertheless, the Board will only progress a change of control transaction on terms that recognise the fundamental value of API and are in the best interests of API shareholders as a whole.”     

The Board said it expected “substantial medium-term growth” from its Priceline group, with a continuing rollout of new stores in the franchise, an “attractive outlook” for discretionary health and beauty spending as COVID restrictions unwind, and utilisation of the recent growth in eScript take-up combined with the Priceline app and store network to deliver medicines to homes.

It also saw the benefit from recent margin improvement and strategic initiatives such as the closure of “nine loss making company-owned Priceline stores in CBD locations as the network is recalibrated into suburban areas post COVID.”

Other beneficial factors listed by the Board included:

  • Additional funding provided to the pharmacy distribution business through the remaining four years of the 7th Community Pharmacy Agreement, coupled wit the resettling of generics supply and the return of Pfizer distribution business.
  • Realisation of earnings growth anticipated from APIs investment in 39 new Clear Skincare clinics, acquired by API three years ago.       

 

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