The Wesfarmers Ltd (ASX: WES) share price is trading lower on Thursday morning.
At the time of writing, the conglomerate’s shares are down 1% to $61.01.
Why is the Wesfarmers share price trading lower?
On 12 July Wesfarmers tabled a $1.38 cash per share offer to acquire the pharmacy chain operator and distributor by way of a scheme of arrangement.
This morning Australian Pharmaceutical Industries announced that its board has carefully considered the proposal, including obtaining advice from its financial and legal advisers.
However, the Board has unanimously concluded that the proposal undervalues the company, is not compelling, and is not in the best interests of shareholders.
Why did it reject the offer?
The Australian Pharmaceutical Industries Board advised that it has undertaken a detailed analysis of the underlying value of the company. This includes assessing its medium and long term growth prospects and reviewing a range of scenarios in relation to its recovery from the impacts of COVID-19 and the related lockdown restrictions.
Following this, it believes Wesfarmers’ offer is opportunistic given the impact COVID-19 and lockdown restrictions have had on its financial performance over the last 18 months, and particularly on its retail facing businesses.
It also feels that its portfolio of complementary wholesale and retail businesses are strategically well positioned in the growing health, wellness, and beauty sector.
In addition, Australian Pharmaceutical Industries notes the potential of its investment in 39 new Clear Skincare clinics over the past three years since the business was acquired and the continued expansion of its clinic network.
Another factor it feels is being overlooked is the expected savings from completing the development of the new automated Marsden Park Distribution Centre by the end of FY 2022. This will allow the consolidation of its supply chain footprint.
Finally, the Board notes that the premium offered by Wesfarmers was significantly below the Australian market average for transactions of this nature.
It concluded: “Although API’s share price has recently traded above the price offered in the Indicative Proposal, the Board recognises that the share price may trade below this level in the short term. Nevertheless, the Board will only progress a change of control transaction on terms that recognise the fundamental value of API and are in the best interests of API shareholders as a whole.”
The Wesfarmers share price is up 19% in 2021.