API (ASX:API) share price rockets 16% as Wesfarmers boosts offer

Wesfarmers has moved one step closer to adding another company to its retail portfolio.

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The Australian Pharmaceutical Industries Ltd (ASX: API) share price has had a jolt of enthusiasm on Thursday. This comes after the retail pharmacy company received a revised acquisition offer from Wesfarmers Ltd (ASX: WES).

All the excitement has propelled the API share price 16.5% higher to $1.48 at the time of writing.

Today’s offer follows previous attempts from the retail conglomerate to acquire API. However, these prior attempts have been futile, with API rejecting the unsatisfactory offers.

Let’s inspect the latest proposal more closely.

A sweetened API share price offer

It appears whatever API has got, Wesfarmers wants it badly. At least, badly enough to amp up its bid for the pharmaceutical retailer by 12.3% to $1.55 per share. After being rejected in July for its $1.38 proposal, Wesfarmers firmly has its sights set on doing a deal.

The revised offer for 100% of outstanding API shares comes to a total cash consideration of $764 million. This proposal also provides for the final fully franked dividend payment up to a maximum of 5 cents per share. However, any such cash component of dividends paid will come out of the total cash payment.

It appears the sweetened API share price offering has gained the blessings of the company’s largest shareholder, Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). Recent data shows the investment conglomerate holds ownership of 18% of outstanding API shares.

Likewise, the board of Australian Pharmaceuticals intends to unanimously recommend the revised proposal. Which leaves the finalisation of acquisition down to due diligence and regulatory approvals.

What’s management’s thoughts?

Commenting on the revised bid, API CEO and managing director Richard Vincent said:

This revised offer better reflects the strength and potential of our stable of businesses that have been built by the efforts and passion of all of our people within API. Aligned with our vision of “enriching life”, we remain firmly focused on making a difference for all our customers and trading partners.

According to the release, Wesfarmers will have until 16 October to conduct its due diligence under the Process Deed.

Thanks to the surge in the API share price, the company now boasts a market capitalisation of $729 million.

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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 owns shares of and has recommended 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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