Connect with us

Business

Australia’s Woolworths makes $613 million drugstore play, taking on Wesfarmers

Australia's Woolworths makes $613 million drugstore play, taking on Wesfarmers 1

By Byron Kaye and Sameer Manekar

SYDNEY/BENGALURU (Reuters) -Top Australian grocer Woolworths Group made a $613 million approach for No. 1 drugstore chain Australian Pharmacutical Industries, besting an already-agreed buyout from retail giant Wesfarmers and sending the target’s shares soaring.

The 11th-hour move from Woolworths sets the scene for a bid war between Australia’s two largest retail companies as they look to grow beyond pandemic-related stockpiling while building on their existing coast-to-coast distribution networks.

A month after API signed a A$764 million ($543 million) buyout agreement with Australian Kmart, Target and Officeworks owner Wesfarmers, Woolworths proposed paying 20 cents a share more. API, owner of Priceline and Soul Pattinson pharmacies, said the Woolworths option was better and allowed it to conduct due diligence.

The Woolworths move sent shares of API up as much as 18% on Thursday, trading briefly higher than its A$1.75 offer, as investors braced for a possible counteroffer from Wesfarmers, Australia’s ninth-largest company by market value.

“It is a case of looking for areas of growth where they can add value,” said Sean Sequeira, chief investment officer at Australian Eagle Asset Management.

“You did see over the last few years that in difficult times healthcare spend has been quite resilient. It’s not highly cyclical.”

Wesfarmers was not immediately available for comment. The conglomerate, which also owns the Bunnings hardware chain, holds 20% of API which is nearly enough to block a takeover since it needs approval from owners of 75% of the pharmacy chain’s shares.

Woolworths said it may opt for a different deal structure – a formal takeover offer rather than a deal that was pre-agreed with API’s board, as it was currently suggesting – that would require approval from just 50.1% of the target’s shareholders.

Under the already-signed deal with Wesfarmers, a fee of A$7.7 million may be due if either of the parties walked away. API did not specify whether it expected that “break fee” to be payable if it went with Woolworths instead.

Woolworths CEO Brad Banducci said there was a “compelling strategic rationale” behind the move on API, with the benefits to be reinvested into growing the pharmacutical business.

($1 = 1.4069 Australian dollars)

(Reporting by Byron Kaye in Sydney and Sameer Manekar in Bengaluru; Editing by Rashmi Aich and Stephen Coates)

Editorial & Advertiser disclosure
Our website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.
Global Banking and Finance Review Awards Nominations 2022
2022 Awards now open. Click Here to Nominate

Recommended

Newsletters with Secrets & Analysis. Subscribe Now