The Wesfarmers Ltd (ASX: WES) share price will be on watch this morning after making a bid for Australian Pharmaceutical Industries Ltd (ASX: API).
Wesfarmers bids for API
The company has submitted a non-binding, indicative offer to buy 100% of API for $1.38 cash per share. That proposal represents a 21% premium to the last closing price. That puts the total acquisition price at approximately $687 million.
Wesfarmers looks to seek the support of the API board of this proposal. However, API’s major shareholder Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), which owns 19.3% of API’s shares, has 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 deal will be funded by Wesfarmers’ existing balance sheet and debt facilities.
Why does Wesfarmers want to buy API?
API is a leading Australian distributor of pharmaceutical goods and operates a portfolio of complementary wholesale and retail businesses like Priceline Pharmacy and Soul Pattinson. It also operates the Clear Skincare clinics brand, which is a provider of skin treatments, laser hair removal and non-invasive cosmetic procedures. It also manufactures pharmaceutical and personal care products through its consumer brands business.
Wesfarmers says that it’s well positioned to bring capital and unique capabilities to support investment that will strengthen the competitive position of API and its community pharmacy partners.
Wesfarmers Managing Director Rob Scott said:
“If the proposal is successful, API would form the basis of a new healthcare division of Wesfarmers and a base from which to invest and develop capabilities in the health and wellbeing sector.
“The combination of Wesfarmers and API is a compelling opportunity to capitalise on API’s strengths and positioning in these markets while drawing upon Wesfarmers’ capabilities in retail and distribution, our strong balance sheet and our willingness to invest in our businesses for growth over the long-term.”
Wesfarmers plans to build on API’s relationships with community pharmacy partners, invest to expand ranges, improve the supply chain and enhance the online experience for customers. These investments are expected to strengthen the competitive position of API and its community pharmacy partners.
Summary thoughts on Wesfarmers and the share price
This seems like a smart move by Wesfarmers for a business that was at an undemanding price.
It’s the type of logistics and retail business that Wesfarmers could really help build and become a larger business. I’m also very interested by the sound of a healthcare division. Wesfarmers is a very good business.
However, I’m not sure I’d want to buy Wesfarmers shares today because of how strongly it has run this year.
There are other ASX dividend shares higher on my watchlist.
