Woolworths enters 11th-hour chess game to acquire API

To show how keenly Woolworths Group (ASX: WOW) wants to get into the pharmacies and pharmacy supplies game, the supermarket giant has made a late play to acquire 100% of Australian Pharmaceutical Industries Limited (ASX: API) – owner of Priceline pharmacy, Soul Pattinson Chemist, and Pharmacist Advice brands - at $1.75-a-share. 

Unsurprisingly, API’s shares shot up in early trading close ($1.745) to Woolworths eleventh-hour bid.

The offer is substantially higher (12.9%) than its rival suitor Wesfarmers (ASX: WES) $1.55-a-share agreed deal announced on 8 November 2021.

The Woolworths offer values the owner of the Priceline Pharmacy chain at $871m.

Strategic manoeuvre

While Woolworths management sees compelling strategic rationale to support Woolworths’ acquisition of API, it was quick to appease concerns its bid is part of a strategy to combine pharmacies within supermarkets.

Meantime, Wesfarmers retains a matching right, but the right is not triggered until there is a competing binding bid, and at this stage Woolworths’ offer was only indicative and non-binding.

Counter manoeuvre

However, Wesfarmers is not without other potential manoeuvres within its trick bag. The WA-based conglomerate retains a 19.3% equity stake after buying this from Washington H. Soul Pattinson in October. 

Should it need to, Wesfarmers could be expected to vote its new stake against the Woolworths deal, hence making problematic for its rival to reach the necessary 75% voting threshold in a scheme of arrangement.

But in conjunction with its due diligence investigations, Woolworths was also quick to flag its willingness to consider other deal structures: Including a takeover bid with a minimum acceptance condition of 50.1% in order to deliver more value and/or certainty for API shareholders.

API gives Woolworths the thumbs up

Meantime, The API board led by chairman Ken Gunderson-Briggs was quick to share his feels towards the new offer, noting its (Woolworths) proposal ‘is, or is reasonably likely to be, superior to Wesfarmers.’ 

If successful, Woolworths plans to continue to support API’s community pharmacy partners to deliver better experiences for both customers and pharmacists. 

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. 

Self-funded

Woolworths noted: “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.”

“Any such alternative transaction structure option would only be pursued by Woolworths Group with the approval of the API directors.”

Assuming Woolworths get its own way, the group’s advisers Jarden and Morgan Stanley expect the transaction to be finalised by second quarter 2022.