What’s going on?
The Wesfarmers share price went down more than 1% today. That’s on the same day that the S&P/ASX 200 Index (ASX: XJO) went down around 0.3%.
Both Wesfarmers and Sigma Healthcare Ltd (ASX: SIG) are interested in buying API. Each business has a different offer for the company.
Sigma has previously submitted an offer that was conditional, non-binding and indicative to merge with API. Sigma thinks that the rationale for a combination of API and Sigma is “highly compelling” with significant benefits accruing to both sets of shareholders.
Under the proposal, API shareholders would receive a consideration of 2.05 Sigma shares and $0.35 cash for each API share held. This put the total bid at a value of $1.57 per API share, before the expected synergies. The API shareholder base would own just under half of the business if the deal were to go through.
Sigma is bullish on what a combination of the two businesses could mean. Management think it would result in the diversification of revenue streams, product and customer. Another benefit could be significant synergies and other efficiencies being available for shareholders. It could create a stronger platform to operate in a changing industry landscape. An enlarged Sigma could also benefit from greater scale and balance sheet capacity.
According to reporting by The Australian, Sigma and its advisers are thinking about “a raid” on API. The newspaper noted that Sigma could buy a “large” stake in the business by acquiring shares on the market. It also suggested that Sigma is thinking about increasing its takeover offer for API.
Where does this leave Wesfarmers and the share price?
Last week, Wesfarmers acquired 19.3% of API from Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
As part of the announcement, it noted it’s still committed to buying API, with an offer of $1.55 cash per API share on the table. It’s currently progressing with its confirmatory due diligence to support its proposal.
Wesfarmers said it has the view that its proposal is superior to the Sigma proposal and is in the best interests of API shareholders. The retail conglomerate does not intend to support or vote its 19.3% holding of API in favour of the Sigma proposal.
Rob Scott, the Wesfarmers managing director, said the proposal would deliver an attractive premium and certain cash return to API shareholders:
Wesfarmers continues to see opportunities to invest in and strengthen the competitive position of API and its community pharmacy partners. Exercising our option to acquire 19.3% of API reflects the group’s commitment to the transaction and the continued progress of the Wesfarmers proposal.
Wesfarmers thinks that buying API would give it the basis of a new healthcare division and a platform from which to invest and develop capabilities in the growing health, wellbeing and beauty sector.
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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. 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 shares of and has recommended Washington H. Soul Pattinson and Company Limited and 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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