What's going on with the Wesfarmers (ASX:WES) API takeover bid?

API recently reported its FY21 result. What's happening with the Wesfarmers offer?

| More on:
Multiple ASX share investors take on one another in a tug of war in a high rise building.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Some time has passed since the first Wesfarmers Ltd (ASX: WES) bid for Australian Pharmaceutical Industries Ltd (ASX: API). What's going on?

API recently announced its FY21 result for the 12 months to 31 August 2021. The business gave an update about the takeover offers on the table.

Timeline of events for API and Wesfarmers

In the middle of July 2021, API announced that it had received an unsolicited, conditional, non-binding and indicative offer from Wesfarmers at $1.38 cash per share. A couple of weeks later, API decided to reject that offer.

Then, in the middle of September 2021, API said that it had received a revised offer from Wesfarmers of $1.55 cash per share and that confirmatory due diligence would commence.

However, then another player decided to make it a takeover battle. API received an offer from Sigma Healthcare Ltd (ASX: SIG) for API of 2.05 Sigma shares and $0.35 cash per API share.

Then, on 7 October, Wesfarmers announced it had exercised the option it had with Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) to buy 19.3% of API.

What are the next steps?

The next phase of the takeover fight could have an important effect on the API share price and the Wesfarmers share price.

API said that it hadn't received and agreed to a final offer from either Wesfarmers or Sigma.

However, it did confirm that due diligence has concluded and negotiations are continuing.

API noted that it would continue to tell the market about what's happening.

FY21 result

API told the market that total revenue was $4 billion, being slightly down by 0.4%. Underlying earnings before interest and tax (EBIT) was $27.8 million., up 15.3%. The underlying net profit rose 25% to $$39.3 million.

API said that prescription medicine sales grew 3.6%, reflecting the resilience its pharmacy business

However, COVID-19 lockdowns closed all of its non-pharmacy price. API also said that it continues to make progress on its NSW distribution centre.

Outlook from API

API said that both retail businesses have bounced back strongly after the lockdowns and the Priceline Pharmacy has done over 250,000 vaccinations.

The FY22 pipeline of potential Priceline Pharmacy franchisees is the strongest it has been for the past three years.

API outlined around $20 million of profit improvements over the next couple of years, thanks to recalibration of Priceline company stores, a new automated distribution centre, an exit of consumer brands manufacturing and a return of Pfizer to CSO wholesales.

The pharmacy company also said that it has mostly achieved acceptable rental outcomes with its CBD landlords.

In total, the company is expecting to open a minimum of 20 new Priceline Pharmacy stores in FY22.

Why does Wesfarmers want to buy API?

If Wesfarmers is successful, it sees opportunities to invest to strengthen the competitive position of API, improving supply chain capabilities and enhancing the online experience for customers.

The ASX share said that API would also form the basis of a new healthcare division of Wesfarmers and a platform from which to invest add develop capabilities in the growing health, wellbeing and beauty sector.

At the current Wesfarmers share price, it is valued at 29x FY22's estimated earnings.

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited and Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Industrials Shares

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Industrials Shares

Up 20% this year, does Macquarie rate Downer shares a buy, hold or sell?

Here’s the broker’s latest stance on the stock.

Read more »

Woman on a tablet waiting in for her flight in an airport and looking through a window.
Industrials Shares

How much upside does Macquarie expect for Auckland International Airport shares?

The airport recently lowered its fees for airlines.

Read more »

a happy plumber smiles while repairing bathroom fittings in a home.
Industrials Shares

After crashing 17% last Friday, does Macquarie rate Reece shares a buy?

Should investors buy in the dip?

Read more »

Piggybank with an army helmet and a drone next to it, symbolising a rising DroneShield share price.
Industrials Shares

5 ASX defence shares that have surged 40% to 307% in just one year

Analysts say the defence investment theme should not be ignored.

Read more »

A middle aged man holds a plumbing plunger in one hand and a piece of toilet pipe in the other with an exasperated look on his face.
Industrials Shares

Guess which ASX 200 industrials stock is sinking today on latest trading update

Softening market conditions see investors head for the door.

Read more »

American soldier in military uniform using laptop for drone controlling.
Industrials Shares

Why this soaring ASX defence stock could rise 17%

Bell Potter has good things to say about this growing company.

Read more »

American soldier in military uniform using laptop for drone controlling.
Share Market News

ASX defence shares lift amid NATO Summit decision to turbocharge spending to 5% GDP

The North Atlantic Treaty Organization (NATO) has also signed a 'milestone' agreement with Australia.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Industrials Shares

Following its investor day, does Macquarie rate Fletcher Building shares a buy, hold or sell?

The New Zealand-based building and construction company updated its loss forecast at its investor day on 24 June.

Read more »