Wesfarmers’ API Bid Could Put the Sector in Play

Wesfarmers surprise bid for pharmacy operator and distributor Australian Pharmaceutical Industries (API) might be on the way to being a done deal, but the $687 million offer could very well re-ignite a brawl over the big retailers such as Coles, Woolies and Metcash getting into the business.

The Pharmacy Guild of Australia has successfully blocked such moves for years now, with the support of successive Federal Governments.

Existing pharmacy chains have also opposed the move to give the giant retailers the freedom to get into the sector, as Woolies tried in 2013 before being rebuffed.

That’s despite the likes of listed companies such as Washington H. Soul Pattinson (owning a stake in API), Sigma and EBOS being major players in the sector, along with the huge privately-owned Chemist Warehouse chain which is now the biggest and most aggressive of all the corporate chains with its mix of company owned and franchised stores.

API owns and operates 474 Priceline pharmacies across Australia, as well Soul Patts stores as well 67 Clear Skincare clinics and a number of health and beauty products sold under the Priceline brand.

Sigma has around 700 stores in its various chains and supplies a further 500,000 or so independent pharmacies.

If the $1.38 a share mooted offer is successful, it would be Wesfarmers’ first move into the pharmacy sector, with the company owning a number of prominent retailers in Australia such as Kmart, Bunnings, Officeworks and Target.

If Wesfarmers is successful, theoretically there would be nothing stopping Coles or Woolies from bidding for Sigma to get hold of its pharmacy chains, the most notable being the Amcal, Guardian and Chemist King groups.

Sigma also has a huge pharmaceuticals and drug distribution business as well and had a market value of more than $680 million at yesterday’s close of 62 cents (up 0.8% on the day).

NZ based EBOS is much larger (it has big drug distribution and pet food businesses as well as pharmacies) and was valued at more than $4.7 billion at Mondays close of $27.73.

The bid was revealed first thing Monday morning and has the support of API’s biggest shareholder, Washington H Soul Pattinson which hold just over 19% of API.

API shares ended 19.6% higher at $1.37, signally the market didn’t see any rivals emerging.

At the same time API made shareholders acceptance a little easier by downgrading its 2020-21 earnings.

Due to the continuing Covid lockdown in greater Sydney, API told shareholders it now sees full-year earnings to be between $66 million to $68 million, down more than 10% from the $75 million previously forecast.

That means the 21% premium for API shares contained in the suggested offer from Wesfarmers, will look a little tastier.

Wesfarmers managing director Rob Scott said the acquisition, if approved by shareholders, would provide the company with an “attractive opportunity” to enter the growing industry. Mr Scott suggested the move could be the first of many by Wesfarmers in the space.

“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,” he said.

“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.”

The same comments wouldn’t be strange coming from the CEOs of Coles (Steve Cain) or Woolies (Brad Banducci).

The deal looks like being done; absent another, higher bid (which Wesfarmers would no doubt top).


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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