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Australian Pharmaceutical (ASX:API) share price sinks as Woolworths withdraws $1.75 bid

Woolworths Group Ltd (ASX: WOW) today announced it has withdrawn its $1.75 per share offer for Australian Pharmaceutical Industries Ltd (ASX: API). 
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Lachlan Buur-Jensen

Lachlan is a Bachelor of Commerce graduate with majors in Accounting and Finance from Monash University. He invests in companies with intense customer love, strongly aligned management teams and structural tailwinds. Lachlan is a big proponent of the eighth wonder of the world – compound returns, and its power in helping individuals reach financial freedom. Outside of investing, Lachlan enjoys supporting his AFL team – Essendon. Albeit, this can be frustrating at the best of times.
More analysis

Woolworths Group Ltd (ASX: WOW) today announced it has withdrawn its non-binding proposal for Priceline owner Australian Pharmaceutical Industries Ltd (ASX: API).

Subsequently, the API share price has tumbled 12.43% in morning trade to $1.52.

Conversely, the Woolworths share price is largely unmoved.

Australia’s largest grocery chain reignited its longtime rivalry with former Coles owner Wesfarmers Ltd (ASX: WES) when it launched a surprising $1.75 per share offer for API in December.

Previously Wesfarmers had made and API had agreed to a $1.55 per share cash offer to acquire the pharmacy chain.

It also holds a 19.3% voting stake in the business, shielding its lower bid from other suitors such as Woolworths and Sigma Healthcare Ltd (ASX: SIG).

Bidding war: API (ASX: API) share price up on new Sigma (ASX:SIG) bid

Numbers didn’t stack up

Following the completion of due diligence, Woolworths noted that it was unable to confirm it could achieve a sufficient financial return within the company’s capital allocation framework.

Subsequently, it has withdrawn its offer.

Commenting on the decision, Woolworths CEO, Brad Banducci said:

“We are grateful to the Board and leadership team of API for their constructive engagement and support throughout the due diligence process.”

Wesfarmers deal on track

In response to Woolworth’s withdrawal, API said that its existing Scheme Implementation Deed (SID) with Wesfarmers remains in place and on track for the first quarter of 2022.

With the deal all but finalised, the Wesfarmers share price is up 2.00% to $59.24.

After reducing the 2 cents per share paid in December to API shareholders, Wesfarmers will acquire the remaining 80.7% share it does not own API for $1.53 per share.

My take

Woolworths announcement was short on details other than $1.75 per share price tag, or $872 million total bid, didn’t stack financially.

Perhaps Woolworths overreached with a bid of 20 cents per share higher than Wesfarmers?

Nonetheless, this battle looks largely complete with Wesfarmers SID to be completed within the next three months.

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