Wesfarmers (WES) on the acqusition trail
WES +0.12%: the group best known for it’s ownership of Bunnings has lobbed a bid for Australian Pharmaceutical Industries (API). The bid comes at $1.38/share, valuing API at $687m, around a 20% premium to last close. API also downgraded guidance today, with the bid representing ~10x Enter Prise Value (EV)/ EBIT. API is a distributor of pharmaceutical and personal care goods with contracts in place with Priceline and Soul Pattinson branded pharmacists. Listed Investment Company (LIC) Washington H Soul Patts (SOL) has a ~20% stake in API, and has already given Wesfarmers its blessing in the bid.
It’s an interesting move for Wesfarmers. In one hand, they have plenty of dry powder and have been on the look out for takeover targets. It does increase it’s retail focus though, with a large portion of earnings coming from Bunnings, Officeworks and Kmart – a distribution network that API can surely benefit from. API’s earnings are at or near a low with lockdowns impacting their profit while a number of other retailers seem to benefit.
