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

Wesfarmers has agreed a deal for API…

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The Wesfarmers Ltd (ASX: WES) share price is pushing higher on Monday following the release of an update on its takeover approach for Australian Pharmaceutical Industries Ltd (ASX: API).

At the time of writing, the conglomerate’s shares are up slightly to $60.74.

Wesfarmers share price higher after takeover update

Investors have been bidding the Wesfarmers share price higher today after it reached an agreement with Priceline pharmacy chain operator Australian Pharmaceutical Industries (API).

According to the release, the two parties have entered into a scheme implementation deed (SID) under which it is proposed that Wesfarmers will acquire 100% of the shares in API that it does not already own via a scheme of arrangement.

Wesfarmers will be paying a cash consideration of $1.55 per API share, less any dividends that are paid. While this represents only a modest premium to the latest API share price, it is a 35.4% premium to its undisturbed closing share price on 9 July 2021.

What now?

The API Board is unanimously recommending that API shareholders vote in favour of the scheme, in the absence of a superior proposal and subject to the independent expert’s report. Each director intends to vote all of the API shares held or controlled by them in favour of it.

The scheme remains subject to customary conditions, including API shareholder approval, court approval, ACCC approval, no material adverse change, and no prescribed occurrences. However, the scheme is not subject to due diligence or financing. The SID also contains exclusivity provisions for Wesfarmers and reciprocal break fees payable in certain circumstances.

Why acquire API?

Wesfarmers’ Managing Director, Rob Scott, expects the acquisition of API to provide an attractive opportunity to enter the growing health, wellbeing, and beauty sector.

He said: “Wesfarmers continues to see opportunities to invest in and strengthen the competitive position of API and its community pharmacy partners by expanding ranges, improving supply chain capabilities and enhancing the online experience for customers.”

Mr Scott also revealed that Wesfarmers will not be making any changes to API’s community pharmacy model.

“In addition to our discussions with API management, we have engaged with industry stakeholders during due diligence. As we have previously stated, Wesfarmers supports the community pharmacy model, including the pharmacy ownership and location rules. Wesfarmers recognises the importance of strong relationships with our trading partners and we look forward to working closely with API’s pharmacy partners, suppliers and other industry stakeholders,” he added.

The Wesfarmers share price is up 18% in 2021.

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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 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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