The Australian Pharmaceutical Industries Ltd (ASX: API) share price is going bananas after receiving a takeover offer from Wesfarmers Ltd (ASX: WES).
The takeover bid from Wesfarmers for API
API announced this morning that it has received a takeover offer from Wesfarmers at an offer price of $1.38 per share, representing a premium of 20.5% to API’s closing share price on 9 April 2021.
Wesfarmers told API that it has entered into an agreement with API’s largest shareholder, Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), which holds a 19.3% stake.
The API board has commenced an assessment of the proposal.
API said: “The API Board notes that its portfolio of pharmacy distribution, health and beauty retail and skin care businesses have attractive characteristics and are well positioned for growth in Priceline Pharmacy’s leading digital offering, and growth in the performance of its Clear Skincare business as a result of the recent investment in its clinic network. 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.”
The API board is now assessing whether the offer is reflective of the long-term growth prospects of API and the expected short-term impacts of the pandemic-related lockdown restrictions.
The company advised shareholders not to take any action in relation to this indicative proposal.
Business update
API also announced today that it’s going to cease manufacturing personal care and over-the-counter products in New Zealand and outsource their manufacturing and focus on pharmacy distribution and retail businesses.
The company advised that current and recent lockdowns during June and July caused the temporary closure of 72% of the non-pharmacy company-owned Priceline stores and 75% of the Clear Skincare clinic network.
Management said that prior to the latest lockdowns, it was expecting full year underlying EBIT (EBIT explained) would be around $75 million. Clear Skincare was recording double digit sales growth, positive like for like sales growth in the majority of Priceline Pharmacy stores, growth in register margins and basket sizes and steadily improving like for like sales in CBD stores.
But, due to the lockdowns, it’s now expecting full year underlying EBIT to be in the range of $66 million to $68 million. Reported EBIT is expected to be in the range of $31 million to $33 million. The lockdowns are impacting EBIT at approximately $1 million per week.
The difference in underlying and reported relates to ending the New Zealand manufacturing, the costs of closing nine Priceline stores based on changes to customer foot traffic and ongoing profitability.
The new Marsden Park distribution centre in Sydney remains on time and within budget, It is anticipated this will deliver a 20% improvement in cost per unit with annualised savings of around $8 million of EBITDA.
Summary thoughts on the API share price
This seems like a solid offer for API from Wesfarmers, if I were a shareholder I’d be inclined to take the money and put it into businesses with longer-term growth prospects.
ASX growth shares could be one area to look at.
