The market may be trading lower today but that hasn't stopped the Australian Pharmaceutical Industries Ltd (ASX: API) share price from rocketing higher.
In morning trade, the pharmacy chain operator and distributor's shares are up 16% to $1.74.
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Why is the API share price rocketing higher?
Investors have been driving the API share price higher after a bidding war for the Priceline owner broke out between two of Australia's biggest retailers.
This morning Woolworths Group Ltd (ASX: WOW) announced that it has submitted a non-binding transaction proposal to acquire API by way of a scheme of arrangement.
According to the release, Woolworths has offered $1.75 cash per share, valuing API's equity at $872 million. But more importantly, this offer represents a significant 20 cents per share or 12.9% increase over the offer tabled by Wesfarmers Ltd (ASX: WES) last month.
The release also notes that the offer is a 52.8% premium to the undisturbed API share price on 9 July.
Why does Woolworths want to acquire API?
Woolworths' CEO, Brad Banducci, believes there is a compelling strategic rationale to acquire API.
He notes that: "Health and wellness is a large, fast-growing category and API would be a fantastic addition to our food and everyday needs ecosystem."
"The combination of the two businesses is expected to lead to material shared benefits and synergies, much of which will be reinvested back into strengthening and growing API and its pharmacy partners," Mr Banducci added.
What's next?
According to a separate release from API, the company's Board believe the Woolworths proposal is more favourable to API shareholders than the Wesfarmers scheme. It also feels it is reasonably likely to be a superior proposal, as defined in the Wesfarmers scheme implementation deed.
As a result, the API Board has decided to allow Woolworths to undertake confirmatory due diligence to facilitate a binding offer.
However, the company has warned that there is no certainty that a deal will ultimately be agreed. As such, shareholders do not need to take any action at this stage.
API also highlights that the Wesfarmers scheme includes a matching right in favour of Wesfarmers, which is exercisable before API enters into any binding agreement in respect of a competing proposal. All eyes will be on Wesfarmers in the coming days.
The API share price is up 38% in 2021 following today's gain.
