The Wesfarmers Ltd (ASX: WES) share price is in focus as it announced another update regarding the Australian Pharmaceutical Industries Ltd (ASX: API) bid.
Wesfarmers still interested in API
The diversified business noted the non-binding indicative proposal made by Woolworths Group Ltd (ASX: WOW) to acquire API. That bid was $1.75 per API share, a premium of $0.20 per share, or 12.9% in percentage terms compared to the Wesfarmers bid.
However, Wesfarmers said that it continues to believe its proposal to acquire API remains in the best interests of API shareholders and stakeholders, and that it will significantly benefit community pharmacists and Priceline franchisees.
Why not match the bid?
There seems to be two reasons that Wesfarmers hasn’t jumped to increase its bid.
The first is that Wesfarmers has the right to match any proposal in the event that it becomes capable of acceptance is considered superior by the API board. Woolworths’ bid seemingly can’t yet be accepted by API.
Wesfarmers also seems to be putting a lot of focus on the fact that it would be better for independent pharmacies and Priceline franchisees. It has been meeting and listening to representatives from across the sector.
The company said that it supports the community pharmacy model which allows pharmacists to meet the health and wellbeing needs of their patients and customers. It’s committed to support pharmacist owners, many being small businesses, to grow their pharmacies over time. That includes growth in prescription medicines, along with growth in services and broader non-prescription health, personal care and beauty products.
Wesfarmers also noted that key API stakeholders, including community pharmacists and Priceline franchisees, have expressed concern about Sister Club customer data being shared with loyalty programs where there is significant overlap with product ranges sold in pharmacies and supermarkets which compete.
I think this is a positive for the Wesfarmers share price – paying less for API would be a positive.
What about Flybuys?
Coles Group Ltd (ASX: COL) was divested from Wesfarmers Ltd (ASX: WES), though Wesfarmers still owns a 50% holding of Flybuys. Wesfarmers has undertaken to keep all of API customer data separate from Coles.
Wesfarmers said this assurance provides API and its community pharmacists, including current and future Priceline franchisees, with comfort that their customer data will be protected from supermarket competitors.
The company said that it will utilise its e-commerce, data and digital capabilities to enhance the API online offer and drive customer engagement, including foot traffic and in-store sales for community pharmacists.
Final thoughts on Wesfarmers and the share price
This seems like a smart, considered decision by Wesfarmers. It doesn’t need to rush into upping the bid if it doesn’t need to. It has a sizeable voting position, owning 19.3% of the business already, which it could use to vote against a Woolworths bid.
If pharmacists and franchisees don’t want Woolworths to take over, then Wesfarmers could still be in the driving seat.
Wesfarmers is a great business and I’d be happy to have it in my portfolio, though I’d hope for better value before buying – I’m not sure if these booming sales will continue in FY23 and onwards.