Australia's Wesfarmers eyes pharmacy sector with $509 million API bid

(Reuters) - Australian retail conglomerate Wesfarmers Ltd on Monday lobbed a A$680 million ($509 million) indicative bid for pharmacy chain Australian Pharmaceutical Industries (API), its first foray into the sector.

Wesfarmers, the owner of the Bunnings hardware and Officeworks chains, said API would form the basis of a new healthcare division and give it a base “to invest and develop capabilities in the health and wellbeing sector.”

API shares jumped 20% in early trade after Wesfarmers priced its offer for the parent of the Priceline Pharmacy and Soul Pattinson brands, at A$1.38 a share, a 20.5% premium to API’s last close of A$1.145 on Friday.

API said it has started assessing the Wesfarmers proposal.

Wesfarmers said API’s top shareholder Washington H Soul Pattinson Co, which owns 19.3% in the pharmaceutical firm, had entered an agreement with Wesfarmers and indicated its support for the proposal.

The bid comes at a time when coronavirus restrictions have resulted in closures of API’s stores and clinics, damaging its bottom line and market valuation. It has lost about 7% so far this year, after losing more than 8% in 2020.

“API shares have been out of favour in recent months given its underinvestment in its [distribution centers] relative to its peers... and continual COVID-19 pressure impacting the profitability of its retail businesses,” CS analyst Gretel Janu said.

“We believe Wesfarmers is particularly interested in API’s retail businesses as it looks to enter Health and Wellbeing sector.”

The deal would give Wesfarmers access to API’s network of retail stores, skincare clinics, and a distribution network of pharmaceutical and healthcare products.

Earlier, API said in a separate filing that it would stop manufacturing personal care and over-the-counter products in New Zealand in a move to simplify its business, and flagged a hit to its earnings for the full-year ending Aug. 31.

($1 = 1.3360 Australian dollars)

Reporting by Sameer Manekar in Bengaluru; Editing by Richard Pullin