The Australian Pharmaceutical Industries Ltd (ASX: API) share price is rising higher, this is why:
Is Wesfarmers taking over API?
On 12 July 2021 API announced that Wesfarmers Ltd (ASX: WES) made a takeover offer at a share price of $1.38. The offer was unsolicited, non-binding and conditional.
The API board said that it has carefully considered the offer and has decided that the offer is “not compelling” and is not in the best interest of API shareholders.
API said that the offer is “significantly” below the Australian market average for a transaction of this nature, with 18.7% premium to the 3-month volume weighted average price (VWAP).
API takes a good look at its value
API said that as part of considering the offer, the board made a detailed analysis of the underlying value of API.
API looked at the medium and long term growth potential and considered its recovery from the impacts of COVID-19, including the impact of lockdown restrictions.
The board said that some of the factors it considered were the expected medium-term growth of Priceline, earnings growth anticipated from 39 new Clear Skincare clinics, a good outlook for health & beauty spending after COVID-19, growth in online sales and eScript offering, among other things.
API expects further savings from completing the new automated Marsden Park distribution centre by the end of FY22, which API expects will consolidate its supply chain footprint.
Management noted the opportunistic timing of the offer, given the impact COVID and lockdowns have had on API’s short-term financial performance over the last 18 months, particularly affecting its physical retail stores.
API share price
Final thoughts on API and the share price
Since Wesfarmers made the offer of $1.38 per share, the API share price has been as high as $1.44 and is currently sitting at $1.43 at the time of writing.
API’s share price was $1.15 before the offer and has risen by 24.3% to the current price.
It seems Wesfarmers was a bit too cheeky with this offer, it remains to be seen if it will come back to the table with a stronger offer that could be recommended to API shareholders.
API is still facing headwinds from COVID-19 impacts, with lockdowns in Sydney continuing. There is also the chance that other states may have to enter further lockdowns before the pandemic is over.
The excitement from the bid is still priced in, however the market may be expecting another bid. With no guarantee that Wesfarmers will make another offer and the fact that API is facing continued COVID-19 headwinds, I would look for good value opportunities in other ASX growth shares.
