The Woolworths Group Ltd (ASX: WOW) share price is falling this morning after outbidding rival Wesfarmers Ltd (ASX: WES) for Australian Pharmaceutical Industries Ltd (ASX: API).
At the time of writing, the retail conglomerate's shares are down 1% to $39.51.
In respect to the others, the Wesfarmers share price is down 0.5% and the API share price is up almost 14%.
What's happening?
Wesfarmers has been dealt a major blow in its quest to acquire the Priceline pharmacy chain operator.
According to an announcement, Woolworths has submitted a non-binding transaction proposal to API to acquire it for a cash offer price of $1.75 per share by way of a scheme of arrangement.
This values API's equity at $872 million and represents a 20 cents per share or 12.9% increase over the offer tabled by Wesfarmers last month.
Woolworths has also revealed that it is willing to explore potential alternative control transaction structure options. This includes a takeover bid with a minimum acceptance condition of 50.1%, in order to deliver more value and certainty for API shareholders.
Though, any such alternative transaction structure option would only be pursued by Woolworths with the approval of the API directors.
The good news for Woolworths, but not for Wesfarmers, is that the API Board believes the offer is more favourable to API shareholders than the Wesfarmers scheme. For these reasons, the API Board has determined that the Woolworths proposal is reasonably likely to be a superior proposal, as defined in the Wesfarmers scheme implementation deed.
Accordingly, the API Board has decided to allow Woolworths to undertake confirmatory due diligence to facilitate a binding offer.
Why would Woolies acquire API?
Woolworths Group CEO, Brad Banducci, explained the rationale for acquiring API.
He said: "There is a compelling strategic rationale to support Woolworths Group's acquisition of API. Health and wellness is a large, fast-growing category and API would be a fantastic addition to our food and everyday needs ecosystem. If successful, we will continue to support API's community pharmacy partners to deliver better experiences for both customers and pharmacists. We will also work to strengthen API's wholesale and distribution business to ensure that all Australians continue to have timely, cost-effective access to a full range of PBS and other medicines, via their community pharmacy, regardless of where they live."
"The combination of the two businesses is expected to lead to material shared benefits and synergies, much of which will be reinvested back into strengthening and growing API and its pharmacy partners. If successful, the transaction is expected to be funded from the Group's existing balance sheet capacity and to deliver attractive returns for Woolworths Group shareholders over the medium term," he concluded.
The Woolworths share price is up almost 17% in 2021.
