Wesfarmers’ $687m play to enter healthcare market with offer for Australian Pharmaceutical Industries Sean Smith and Daniel NewellThe West Australian
Mon, 12 July 2021 11:34AM
Wesfarmers managing director Rob Scott said API would form the basis of a new healthcare division of the company.
Wesfarmers is seeking talks with the board of Australian Pharmaceutical Industries after launching into Australia’s growing health, wellbeing and beauty market with a $687 million play for the owner of Priceline Pharmacy.
The WA-based conglomerate’s yet-to-be-finalised offer values API at $1.38 a share, just a 21 per cent premium to Friday’s closing price of $1.145 a share and only 22 per cent up on the target’s volume-weighted average price over the past three months.
API’s board said Wesfarmers was seeking to exploit the trading hit incurred by the company during COVID-19, but its defence has been seriously undermined by the decision of its biggest shareholder Washington H. Soul Pattinson to accept the offer for its 19.3 per cent stake, in the absence of a higher bid.
Wesfarmers chief executive Rob Scott said the group had needed “a very compelling price” to draw out WHSP, a former partner in the Bengalla colliery in NSW.
He said despite the “obvious” pressures put on API by the virus, “we feel in the context of the current environment and based on where the business has traded in recent years, it’s a really strong proposal”.
“We are really pleased to have the support of the major shareholder, which is very helpful, but we look forward to working with the board in a constructive way and we are confident we can move forward with a proposal that is in the best interests of API shareholders,” Mr Scott said.
Wesfarmers is cashed up after selling down its remaining stake in Coles and has been looking for undervalued businesses where it can bring its expertise in retail and distribution and its balance sheet to bear.
API operates a portfolio of wholesale and retail businesses in the health, wellbeing and beauty sector, including the Priceline Pharmacy, Soul Pattinson and Pharmacist Advice brands.
It also runs Clear Skincare clinics across Australia, providing skin treatments, laser hair removal and cosmetic procedures.
The purchase, to be effected via a scheme of arrangement, would give Wesfarmers a network of more than 550 pharmacies around Australia that helped API generate COVID-impacted first-half revenue of $2 billion.
API’s pre-virus annual net earnings of $55m are small when compared to Wesfarmers’ yearly earnings of $1.7b but the WA group sees the business as providing the foundation for a new division, saying a move into healthcare had been “a long time in the works”.
“If you look at what has happened over the Wesfarmers portfolio in recent years, we’ve demerged Coles, we sold our insurance and coal businesses, so we’ve more than enough capacity to have a new division ... without restricting our other businesses,” Mr Scott said.
“It’s a small, modest investment but we think it could be a useful platform to grow over time.”
He insisted there were no plans to push for changes that would allow big retailers such as Wesfarmers to open pharmacies in its own stores.
“Wesfarmers supports the community pharmacy model, including the pharmacy ownership and location rules, and considers API’s relationships with its community pharmacy partners to be one of its key strengths,” Mr Scott said.
“We see opportunities to build on these relationships and invest to expand ranges, improve supply chain capabilities and enhance the online experience for customers.
These investments are expected to strengthen the competitive position of API and its community pharmacy partners.”
API said its board was reviewing whether the indicative offer reflected the long-term growth prospects of the business and the expected short-term impacts of the pandemic-related lockdown restrictions.
“The indicative proposal has been made at a time where COVID-19 restrictions have resulted in store and clinic closures and these have significantly impacted on API’s operational performance,” it said.
API shares were 23¢ higher at $1.37 as at 11.25am, while Wesfarmers was 14¢ better at $58.14.
WES Price at posting:
$58.19 Sentiment: None Disclosure: Held
(20min delay)