ASX 200 rises, API soars, Wesfarmers up

The ASX 200 rose today. There was a takeover offer for API.

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The S&P/ASX 200 Index (ASX: XJO) rose by 0.8% today to 7,334 points.

Here are some of the highlights from the ASX:

Wesfarmers Ltd (ASX: WES) offer for Australian Pharmaceutical Industries Ltd (ASX: API)

Wesfarmers announced today a non-binding, indicative proposal to buy the entire API business.

This offer was a 21% premium to API’s last closing price.

API’s largest shareholder, Washington H. Soul Pattinson and Co Ltd (ASX: SOL), which owns 19.3% of API, has agreed to vote in favour of the proposal and has granted a call option in respect of its API shares in favour of Wesfarmers.

Wesfarmers said it’s well positioned to bring capital and unique capabilities to support investment that will strengthen the competitive position of API and its community pharmacy partners.

The Wesfarmers managing director Rob Scott said:

If the proposal is successful, 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.

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.

API’s board pointed out that the offer has been made at a time when COVID-19 restrictions have resulted in store and clinic closures and these have significantly affected operational performance. The board is undertaking an analysis on whether the offer is reflective of the long-term growth prospects of API and the expected short-term impacts of the pandemic lockdown restrictions.

Indeed, in a trading update that was also released today, it said that lockdowns in the current form beyond the end of July would impact profit by approximately $1 million of earnings before interest and tax (EBIT) per week of extension.

API is now expecting that its full year underlying EBIT will be in between $66 million to $68 million and its reported EBIT to be in the range of $31 million and $33 million.

The company also said that the build of its new Marsden Park distribution centre in north-west Sydney, at a cost of $50 million, remains on time and within budget. That automated distribution centre is expected to deliver a 20% improvement in cost per unit with annualised savings of around $8 million at the earnings before interest, tax, depreciation and amortisation (EBITDA) level, flowing from the start of FY23.

Healius Ltd (ASX: HLS)

The Healius share price rose slightly today. It announced an acquisition.

It is buying Axis Diagnostics, which the ASX 200 company described as a high-quality Queensland-based imaging business with EBITDA of approximately $2 million, consisting of three radiology practices located in growth areas near Brisbane and one practice in the Whitsundays.

Healius managing director and CEO Dr Malcolm Parmenter said:

The acquisition is in line with our business’ network optimisation strategy, has been funded from cash and is earnings per share accretive. It complements and extends our existing footprint, grows revenue and capabilities, and deliver synergies with our facilities and national contracts.

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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.

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