Woolworths Group Ltd (ASX: WOW) may be on the look out for another acquisition to boost and diversify its earnings.
The business is more than just a supermarket business. It also has a business to business segment, which includes food service distributor PFD Services which it invested in, showing it is willing to expand. PFD Services distributes a wide range of foodservice products.
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Woolworths on the hunt
According to reporting by The Australian, the healthy meal delivery business Lite n' Easy is currently going through a sales process.
It was speculated that the owners, Graham Mitchell of Mitchell's Quality Foods, are in discussions with one particular group for a potential transaction.
How much could Lite n' Easy go for? Seemingly around $1 billion according to the newspaper.
That potential $1 billion valuation compares to the earnings before interest, tax, depreciation and amortisation (EBITDA) of $65 million by Lite n' Easy.
Some private equity groups have been sniffing around the business, including Kohlberg Kravis Roberts, BGH Capital and Pacific Equity Partners.
KKR's interest in the business comes from the fact it has an Australian food manufacturing business – Arnott's Biscuits – which could benefit from a division focused on ready-made meals.
The Australian named Woolworths as a business that shouldn't be discounted as a contender for Lite n' Easy.
Could Woolworths afford the deal?
The potential sale of Lite n' Easy comes at an interesting time.
Whilst Woolworths may be capable of funding a $1 billion acquisition, it is already in the thick of a takeover battle for another business – the ASX pharmacy business Australian Pharmaceutical Industries Ltd (ASX: API).
Woolworths has launched a non-binding bid to buy 100% of API at a cash offer price of $1.75 per API share, equating to a total equity value of $872 million.
This API offer gazumped the bid from Wesfarmers Ltd (ASX: WES) by 12.9%, or $0.20 per share in dollar terms.
It will be interesting to see whether Woolworths tries to pursue both potential options.
Woolworths notes that the board of API has determined that the Woolworths proposal is, or reasonably likely to be, a superior proposal.
What's the thinking behind the API offer?
The Woolworths CEO Brad Banducci explained why the company is interested in the business:
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.
We are strongly committed to supporting the community pharmacy model including pharmacy ownership and location rules to ensure pharmacies are well represented in all communities, especially in regional and remote parts of Australia.
