Own Wesfarmers shares? Here's what's rumoured to be next on the acquisition list

Does the strategic rationale stack up for the latest deal rumoured to be on Wesfarmers' plate?

| More on:
a woman holds a cup to her ear and leans in with a wide mouthed expression on her face as though she is listening to interesting and perhaps surprising information.

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

Those who have held Wesfarmers Ltd (ASX: WES) shares over many years have benefitted from the conglomerate's expertise in acquiring, managing, and spinning off Australian businesses.

In recent years, the ASX blue-chip company has added Beaumont Tiles and former ASX-listee Australian Pharmaceutical Industries to its arsenal. Entering a binding deed on 26 June, Silk Laser Australia Ltd (ASX: SLA) looks set to possibly join the Wesfarmers pack.

However, rumour has it there could be another listed company already in Wesfarmers' sights.

Which ASX 200 member could be on the menu?

A week ago, Incitec Pivot Limited (ASX: IPL) addressed speculation that it was contemplating the sale of its fertilisers business. The company confirmed it had fielded 'a number' of approaches for its plant-powering division.

According to reporting by The Australian, the ever-sprawling Wesfarmers could be one of those approaches. Based on 'talk in the market', the retail powerhouse may have reached out to Incitec not too long ago.

With no word from Incitec, no formal deal has yet materialised. Though it is believed that three parties have kicked the tyres.

Source: Wesfarmers 2023 Strategy Briefing Day

Given the nature of Incitec's fertiliser business, it would make sense for the WesCEF division of Wesfarmers to get involved. As it stands, WesCEF already produces ammonia and ammonia nitrate, in addition to selling fertiliser. Currently, the Kwinana-based CSBP is its cornerstone operation, as depicted above.

An acquisition of Incitec Pivot Fertilisers would extend WesCEF's dominance across the east coast.

Could another deal jeopardise Wesfarmers' shares?

Too much inorganic growth can be concerning. With several recent acquisitions under the belt, could another create a predicament for Wesfarmers?

Fortunately, the company has not diluted its shareholders to fund recent deals. Since 2017, the total number of shares outstanding has remained steady at 1.134 billion. Though, this would mean the balance sheet has done the heavy lifting.

The past couple of years have seen cash dwindle while debts rise. At the end of 2022, net debt stood at $4.41 billion, increasing from $2.73 billion the year prior.

Data by Trading View.

Despite the balance sheet deterioration, debt remains well covered by operating cash flows. Moreover, the company's interest coverage ratio of nearly 11 marks an improvement over earlier years, as pictured above.

The Wesfarmers share price is up 8.4% since the beginning of the year.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool Australia has recommended Silk Laser Australia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Mergers & Acquisitions

Miner looking at a tablet.
Mergers & Acquisitions

Gold Road shares surge 10% on $3.7 billion takeover offer

The ASX 200 gold stock is soaring after finding itself in the acquisition crosshairs.

Read more »

A corporate team or board stands together and looks out the window.
Technology Shares

WiseTech shares charge higher on $3.5b acquisition news

This tech stock is ending the week positively. But why?

Read more »

Two CEOs shaking hands on a deal.
Financial Shares

This ASX 300 stock is jumping on surprise merger news

This stock could be having a very big makeover.

Read more »

A graphic showing three hands holding red paddles with the word BID, indicating a bidding war for an ASX share company
Mergers & Acquisitions

Guess which ASX All Ords stock just received a new takeover offer

Let's see which stock is in the crosshairs of a rival.

Read more »

Man with rocket wings which have flames coming out of them.
Technology Shares

Guess which ASX All Ords stock is rocketing 34% on takeover deal

This stock looks set to leave the ASX boards in the near future after accepting a takeover deal.

Read more »

Two miners standing together.
Gold

Northern Star Resources set to buyout rival De Grey mining

As gold soars, ASX miners continue to mine the acquisition pipeline.

Read more »

Man with rocket wings which have flames coming out of them.
Mergers & Acquisitions

Guess which ASX 300 stock is rocketing 15% on big takeover offer

Not every share is being dragged lower on Monday.

Read more »

Happy woman holding white house model in hand and pointing to it with a pen.
Mergers & Acquisitions

Up 70% this year, Domain share price wobbles on CoStar takeover update

Domain released an update on CoStar’s $2.8 billion takeover bid.

Read more »