Australian mergers and acquisition (M&A) bankers are working overtime at the moment as activity reaches all times highs.
First, it was Sydney Airport Holdings Pty Ltd (ASX: SYD). Then it was Ausnet Services Ltd (ASX: AST). And now it’s Australian Pharmaceutical Industries Ltd (ASX: API).
Wesfarmers takes control
In order to firm up its second $1.55 bid, Wesfarmers Ltd (ASX: WES) has exercised an option over 95.1 million shares in API.
The 19.3% stake was originally owned by major API shareholder Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
Wesfarmers has purchased the shares for $1.38, however would need to pay the difference to WHSP if its $1.55 offer is approved.
The 19.3% shareholding in API now gives Wesfarmers significant voting power over the local pharmacy chain.
Why did Wesfarmers nab a 19% stake?
Wesfarmers decision to exercise the option is in response to the Sigma Healthcare Ltd (ASX: SIG) $1.57 merger proposal.
Sigma’s offer to merge with API is at a slight premium to Wesfarmers offer.
In order to protect its own bid as well as convince existing shareholders and directors, Wesfarmers has exercised its option with WHSP to become a major shareholder of API.
“Wesfarmers does not intend to support, or vote its 19.3 per cent API shareholding in favour of, the Sigma proposal”
Wesfarmers v Sigma
The takeover battle is heating up and is now a two-horse sprint for API.
While Sigma’s offer of $1.57 is higher than Wesfarmers $1.55 proposal, it’s worth noting the difference between the two bids.
Wesfarmers offer is all cash, meaning existing shareholders would be giving up exposure to API.
Conversely, Sigma’s offer is mostly equity, meaning existing API shareholders would receive shares in Sigma in addition to a small cash component.
The API board has already agreed to accept Wesfarmers bid pending the usual due diligence process.
Who wins from here?
With Wesfarmers now controlling almost 20% of the share register, I’d say it’s all but certain the business will win the sprint for API.
Wesfarmers will only need to convince 30% of the remaining shareholders whereas Sigma needs at least 50%.
Although Sigma’s proposal is compelling. Sigma’s management believes it can extract synergies between the businesses to reduce costs and create a bigger pharmacy group.
Ultimately, it will come down to shareholders.
Do they want to continue to have exposure to API? Or are they happy for Wesfarmers to take control and walk away with the cash?
