Some time has passed since the first Wesfarmers Ltd (ASX: WES) bid for Australian Pharmaceutical Industries Ltd (ASX: API). What's going on?
API recently announced its FY21 result for the 12 months to 31 August 2021. The business gave an update about the takeover offers on the table.
Timeline of events for API and Wesfarmers
In the middle of July 2021, API announced that it had received an unsolicited, conditional, non-binding and indicative offer from Wesfarmers at $1.38 cash per share. A couple of weeks later, API decided to reject that offer.
Then, in the middle of September 2021, API said that it had received a revised offer from Wesfarmers of $1.55 cash per share and that confirmatory due diligence would commence.
However, then another player decided to make it a takeover battle. API received an offer from Sigma Healthcare Ltd (ASX: SIG) for API of 2.05 Sigma shares and $0.35 cash per API share.
Then, on 7 October, Wesfarmers announced it had exercised the option it had with Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) to buy 19.3% of API.
What are the next steps?
The next phase of the takeover fight could have an important effect on the API share price and the Wesfarmers share price.
API said that it hadn't received and agreed to a final offer from either Wesfarmers or Sigma.
However, it did confirm that due diligence has concluded and negotiations are continuing.
API noted that it would continue to tell the market about what's happening.
FY21 result
API told the market that total revenue was $4 billion, being slightly down by 0.4%. Underlying earnings before interest and tax (EBIT) was $27.8 million., up 15.3%. The underlying net profit rose 25% to $$39.3 million.
API said that prescription medicine sales grew 3.6%, reflecting the resilience its pharmacy business
However, COVID-19 lockdowns closed all of its non-pharmacy price. API also said that it continues to make progress on its NSW distribution centre.
Outlook from API
API said that both retail businesses have bounced back strongly after the lockdowns and the Priceline Pharmacy has done over 250,000 vaccinations.
The FY22 pipeline of potential Priceline Pharmacy franchisees is the strongest it has been for the past three years.
API outlined around $20 million of profit improvements over the next couple of years, thanks to recalibration of Priceline company stores, a new automated distribution centre, an exit of consumer brands manufacturing and a return of Pfizer to CSO wholesales.
The pharmacy company also said that it has mostly achieved acceptable rental outcomes with its CBD landlords.
In total, the company is expecting to open a minimum of 20 new Priceline Pharmacy stores in FY22.
Why does Wesfarmers want to buy API?
If Wesfarmers is successful, it sees opportunities to invest to strengthen the competitive position of API, improving supply chain capabilities and enhancing the online experience for customers.
The ASX share said that API would also form the basis of a new healthcare division of Wesfarmers and a platform from which to invest add develop capabilities in the growing health, wellbeing and beauty sector.
At the current Wesfarmers share price, it is valued at 29x FY22's estimated earnings.
