Shares in Australian Pharmaceutical Industries rode out the board’s rejection of Wesfarmers’ $1.38 a share offer on Thursday and ended the day higher, not lower.
Investors twigged to the realities of the rejection – that Wesfarmers will have to come back with a higher price if it wants API for its much-trumpeted move into another area of retailing to go with Bunnings, Officeworks, Catch and Kmart/Target.
API shares ended the day 2.1% higher at $1.44.
API shares ended Wednesday at $1.41 and have been trading above the offer price since July 14.
There’s no chance of a counter bidder emerging because API’s major shareholder, Washington H Soul Pattinson has effectively allowed Wesfarmers to dominate API by doing a deal on its 19.3% stake.
Soul Patts has given Wesfarmers a call option over its stake which effectively blocks any rival offer.
For that reason alone if Wesfarmers really wants API it will have to make a realistic offer instead of trying a cheapskate first up offer.
In its statement on Thursday API’s board rejected the Wesfarmers bid price of $1.38 as “opportunistic” and not in the best interests of shareholders.
API’s board added that the offer undervalued the company.
API owns the pharmacy chain Priceline and Soul Pattinson chemists as well as a chain of skin care centres.
“The Board has unanimously concluded that the Indicative Proposal undervalues API, is not compelling and is not in the best interests of API shareholders.
“In coming to this conclusion, the Board has undertaken detailed analysis of the underlying value of API, including assessing the medium and long term growth prospects of the company and reviewing a range of scenarios in relation to API’s recovery from the impacts of COVID-19 and the related lockdown restrictions,” directors told the ASX in a statement before trading opened on Thursday morning.
“The Board notes that the Indicative Proposal implies a premium of 18.7% to the 3-month Volume Weighted Average Price (VWAP) which is significantly below the Australian market average for transactions of this nature.
“Although API’s share price has recently traded above the price offered in the Indicative Proposal, the Board recognises that the share price may trade below this level in the short term.
“Nevertheless, the Board will only progress a change of control transaction on terms that recognise the fundamental value of API and are in the best interests of API shareholders as a whole,” the statement concluded.
