Wesfarmers to enter healthcare with $687m takeover of Priceline

Retail conglomerate Wesfarmers (ASX: WES) is set to create a new health and wellbeing division to service one of Australia’s fastest growing industries via the acquisition of Australian Pharmaceutical Industries (ASX: API), the operators of Priceline Pharmacies.

A non-binding offer has been presented to the Board of API to acquire 100% of the shares on issue for $1.38 each which values the Company at $687 million. The Offer Price also represents a 22% premium to the one-month volume weighted average price of $1.13 of API shares.

With Wesfarmers having spun out Coles (ASX: COL) as a separate company in 2018, the retail operator had minimal exposure to Australia’s healthcare industry with its primary retail assets being Bunnings, Kmart, Catch and the FlyBuys rewards program.

“If the Proposal is successful, API would form the basis of a new healthcare division of Wesfarmers and a base from which to invest and develop capabilities in the health and wellbeing sector,” said Wesfarmers Managing Director, Rob Scott.

“The combination of Wesfarmers and API is a compelling opportunity to capitalise on API’s strengths and positioning in these markets while drawing upon Wesfarmers’ capabilities in retail and distribution, our strong balance sheet and our willingness to invest in our businesses for growth over the long term.

“Wesfarmers supports the community pharmacy model, including the pharmacy ownership and location rules, and considers API’s relationships with its community pharmacy partners to be one of its key strengths. We see opportunities to build on these relationships and invest to expand ranges, improve supply chain capabilities and enhance the online experience for customers.”

The takeover proposal has already been supported by API’s largest shareholder with Washington H. Soul Pattinson (ASX: SOL) confirming they will vote in favour of the proposal for their 19.3% stake in API.

While Priceline is the flagship brand for API, other businesses operated include Clear Skincare clinics, a provider of skin treatments, laser hair removal and non-invasive cosmetic procedures. Clean Skincare also manufactures pharmaceutical and personal care products which are distributed through clinics and external pharmacies. Outside of Priceline, API also provides retail support services to Soul Pattinson and Pharmacist Advice brands.

If approved, the acquisition will be funded by Wesfarmers’ existing cash reserves and debt facility where its credit rating is unlikely to be affected. The acquisition would also be subject to API shareholder approval and clearance from the Australian Competition and Consumer Commission.

For the Half Year ended 31 December 2020, Australian Pharmaceutical Industries reported $2 billion in sales revenue with net profit after tax down 29.3% on pcp to $15.9 million.