Wesfarmers (ASX:WES) share price rises on API takeover offer

Wesfarmers is finally putting its money to work…

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The Wesfarmers Ltd (ASX: WES) share price is pushing higher on Monday morning.

At the time of writing, the conglomerate’s shares are up 1% to $58.54.

This leaves the Wesfarmers share price trading just a fraction short of a record high.

Why is the Wesfarmers share price rising?

The catalyst for the rise in the Wesfarmers share price this morning was news that the company has finally found a takeover target. According to the release, that takeover target is pharmacy chain operator and wholesale distributor Australian Pharmaceutical Industries Ltd (ASX: API).

Wesfarmers has made a non-binding, indicative offer to acquire 100% of the Priceline Pharmacy owner for $1.38 cash per share by way of a scheme of arrangement. This represents a 21% premium to Australian Pharmaceutical Industries’ last close price of $1.145 per share and values the company at $687 million.

Positively for Wesfarmers, Australian Pharmaceutical Industries’ major shareholder, Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), has agreed to vote in favour of the proposal. It has also granted a call option in respect of its 19.3% stake in favour of Wesfarmers.

The proposal remains subject to the satisfaction of limited conditions precedent. These include the completion of due diligence and obtaining clearance from the Australian Competition and Consumer Commission (ACCC).

The Australian Pharmaceutical Industries Board has responded by advising that it is undertaking an analysis of whether the proposal is reflective of its long-term growth prospects and the expected short-term impacts of the pandemic-related lockdown restrictions.

Why Australian Pharmaceutical Industries?

Wesfarmers notes that Australian Pharmaceutical Industries operates a portfolio of complementary wholesale and retail businesses in the growing health, wellbeing and beauty sector. It believes it is well-positioned to bring capital and unique capabilities to strengthen its competitive position and its community pharmacy partners.

Wesfarmers’ Managing Director, Rob Scott, commented: “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.”

Mr Scott revealed that the company is a fan of Australian Pharmaceutical Industries’ community pharmacy model and intends to build upon it.

“Wesfarmers supports the community pharmacy model, including the pharmacy ownership and location rules, and considers API’s relationships with its community pharmacy partners to be one of its key strengths. We see opportunities to build on these relationships and invest to expand ranges, improve supply chain capabilities and enhance the online experience for customers. These investments are expected to strengthen the competitive position of API and its community pharmacy partners,” Mr Scott said.

The Wesfarmers share price has been a positive performer in 2021. Following today’s gain, the Wesfarmers share price is now up almost 14% since the start of the year.

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Motley Fool contributor James Mickleboro 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 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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