Why did the Wesfarmers share price perform so well in April?

It was a good month for Wesfarmers. Here's why.

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Key points

  • Wesfarmers shares have soundly outperformed the ASX 200 in April
  • The company announced its plans to expand its healthcare division
  • It’s looking to acquire the Silk Laser Australia business

The Wesfarmers Ltd (ASX: WES) share price performed admirably in April 2023, rising by 3.4%. This compares to the S&P/ASX 200 Index (ASX: XJO) which went up by 1.8%, as of Friday afternoon.

Outperforming by around 1.6% is a solid result considering the business is large and that it's heavily exposed to the retail sector with its businesses of Kmart, Target, Officeworks and Bunnings.

What happened during April?

There was one major piece of news that happened during the month that related to Wesfarmers – it put a proposal to Silk Laser Australia Ltd (ASX: SLA) to acquire the entire business.

Wesfarmers described Silk Laser as one of the largest non-surgical aesthetics clinic operators in Australia and New Zealand with a network of over 140 clinics. If the $3.15 cash per share offer is successful, Silk Laser will become part of the Wesfarmers Health division and will complement the existing presence in the sector through the Clear Skincare Clinics business.

The offer implies a total equity value of $169 million for Silk Laser based on this offer. It's not a big deal for the Wesfarmers share price, in the grand scheme of its market capitalisation.

Wesfarmers has 30 business days to undertake exclusive due diligence, with the potential to extend the exclusivity period for a further 10 business days in certain circumstances. During this period, the two businesses will negotiate the scheme implementation deed, meaning the takeover agreement

Silk Laser's board has said that they intend to unanimously recommend that shareholders vote in favour of the takeover, and that each director intends to vote any shares they own in favour of the deal.

One of Silk's largest institutional investors, Wilson Asset Management (which owns/owned 9.3% of the business), has confirmed its support for the proposal and has entered into a voting agreement with Wesfarmers.

At the start of the month, we heard that the Reserve Bank of Australia (RBA) had decided to halt its interest rate increases, leaving the official cash rate at 3.6%, after the huge amount of increases since May last year.

That may have been promising for Wesfarmers shares because a higher interest rate could have put further pressure on households and businesses that could be Wesfarmers' customers in the coming months, which could have been a negative for the company's earnings.

Foolish takeaway

In the grand scheme of things, a takeover of Silk Laser may not change Wesfarmers' earnings that much, but it could be helpful. It shows the intent of management to grow this division. Interest rates pausing, and ending up lower than feared, could be a positive as well for the Wesfarmers share price.

Motley Fool contributor Tristan Harrison 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 has positions in and has recommended Wesfarmers. The Motley Fool Australia has recommended Silk Laser Australia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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