Wesfarmers (ASX:WES) now has control of API, but is the real fight just beginning?

Could Wesfarmers face some challenges ahead?

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Key points

  • The Wesfarmers share price lifted nearly 1% today 
  • Wesfarmers has received court approval for the acquisition of Australian Pharmaceutical Industries 
  • Working with franchisees may present a challenge in the future, according to a former CEO

The Wesfarmers Ltd (ASX: WES) share price finished in the green today amid another acquisition milestone.

Wesfarmers shares were trading at $50.68 at market close, a 0.7% gain. In comparison, the S&P/ASX 200 Index (ASX: XJO) slipped 0.22%.

Let’s take a look at what could impact Wesfarmers in the future.

What challenges lie ahead?

Wesfarmers recently received shareholder approval to take over Australian Pharmaceutical Industries (ASX: API), the owner of Priceline. Today, the Federal Court approved the scheme of arrangement for this acquisition.

However, many of API’s Priceline network pharmacies are independently owned franchises. This means Wesfarmers will need to work with 1400 independent retailers, The Financial Review reported.

The publication quoted former financial services chief executive Andrew Reitzer, who has previously said working with independently owned retailers was like “herding cats”.

The problem with this business model is that independent retailers are exactly that – fiercely independent. They have strong opinions on what works best for their business and don’t like being told what to do and when to do it.

Wesfarmers CEO Rob Scott has acknowledged the differences working with franchises but also recognises the similarities, the publication reported. He said:

There are differences in terms of managing a successful franchise group, but there are a lot of basic principles around product, pricing, supply chain, digital engagement and e-commerce that will still be very relevant.

API shares will be suspended from the close of trading on 22 March.

WAM Leaders Ltd (ASX: WLE) portfolio manager John Ayoub has recently named Wesfarmers as one of five reliable shares that can ride out 2022 volatility.

Wesfarmers share price snapshot

The Wesfarmers share price has climbed 0.14% in the past 12 months but lost 14.54% in the year to date.

Over the past month, Wesfarmers shares have jumped 0.54% and are 3.05% higher in the last week.

Wesfarmers has a market capitalisation of about $57.5 billion based on the current share price.

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 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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