Sigma Healthcare’s attempt to snatch control of rival pharmacy group Australian Pharmaceutical Industries (API) appears to have been thwarted, with rival bidder Wesfarmers exercising its call option over 19.3% API shares, giving it a dominant blocking position.
At the same time Wesfarmers told the market that it will not, at this stage, be lifting its offer price in response to the offer from Sigma Healthcare.
Wesfarmers struck the call option over 95.1 million API shares with Washington H. Soul Pattinson and Company Limited as the cornerstone of its bid in July for API at $1.38 a share cash. Wesfarmers later lifted that first offer to $1.55 a share cash.
Certainly investors saw the Wesfarmers’ move as increasing the chances of grabbing control of API – the latter’s shares rose by just over 1% to $1.525, not too far away from the Wesfarmers price.
Shares in Wesfarmers rose 0.5% to $54.33 but Sigma shares did nothing ending the session unchanged on 57 cents. That put the value of offer of 35 cents cash and 2.05 Sigma shares at just under $1.52.
The exercising of the call option gives Wesfarmers the superior position in the battle for API and Sigma can’t hope to get full control if it proceeds with its shares and cash offer that was valued at $1.57 when made in late September.
Wesfarmers said in Thursday’s statement that it “remains committed to pursuing its proposal to acquire 100 per cent of the shares in API by way of a scheme of arrangement for cash consideration of $1.55 per share, subject to the terms and conditions outlined in the Wesfarmers announcement of 16 September 2021. Wesfarmers is progressing with its confirmatory due diligence investigations in support of its proposal.”
Wesfarmers also said that given its “commitment to progress its own proposal to acquire API, Wesfarmers does not intend to support, or vote its 19.3 per cent API shareholding in favour of, the Sigma proposal.”
Wesfarmers CEO Rob Scott said in the statement that its 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 per cent of API reflects the Group’s commitment to the transaction and the continued progress of the Wesfarmers proposal,” Mr Scott said.
The acquisition price of the Soul Patts holding under the option was $1.38 for each API share acquired. In addition, Wesfarmers is required to make further payments to WHSP such that WHSP receives total consideration per API share equivalent to that paid under any successful Wesfarmers acquisition of API (ie another 17 cents a share).
On top of this there’s the regulatory approvals needed, especially from the the competition regulator, the ACCC. A merger between the two was knocked by 20 years ago and API tried and then dropped an offer of its down several years ago.
The rise of the Chemist Warehouse chain might change thinking at the ACCC about the impact on competition from a takeover of API by Sigma, but Wesfarmers has no concerns in that area whatsoever, which gives it another edge.
