Anticipation is building for Wesfarmers to lob a higher cash bid for Priceline pharmacy chain owner API after Sigma topped its earlier bid on Monday with a $773m offer.
As the takeover battle heats up, key to the competition may be the call option agreement Wesfarmers has entered into over a 19.3 per cent interest in the business owned by shareholder Washington H. Soul Pattinson.
Wesfarmers has the right to exercise the call option if it matches a bid by Sigma, but exactly what an equivalent offer could be is likely to be subject to debate given one is cash and the other is cash and scrip.
Sigma’s offer involves 35c per share of cash and 2.05 Sigma shares per API share. Its offer on Friday night came hot on the heels of the appointment of Sigma’s new boss, Vikesh Ramsunder.
As at Friday night, its offer was worth $1.57 per share when shares closed at 59.5c. They closed at 60c on Monday.
That proposal has trumped Wesfarmers’ latest $1.55-per-share cash bid, which was recently sweetened from $1.38.
Synergies of at least $45m also exist with the Sigma offer, which some API investors believe are conservative.
They are backing the Sigma deal for its synergies, opportunity to retain franking credits worth at least $40m and for capital gains tax benefits.
Industry sources say the pharmacies, which hold considerable sway as API and Sigma’s customers, are also likely to favour a Goldman Sachs-advised Sigma transaction.
The concern is Wesfarmers has plans to increase sales of beauty and healthcare products through its online retail functions, which could eat into its profits.
The big unknown is what the Australian Competition & Consumer Commission thinks.
This is the fourth time a tie-up between both pharmacy wholesalers has been contemplated, and on each occasion the ACCC has been a major factor to consider, given both groups are two out of three of the nation’s largest players.
API, which has its revenue almost equally split between retail and wholesale pharmacy, is advised by Macquarie Capital, while Wesfarmers is advised by Gresham.
Simon Mawhinney, managing director and chief investment officer of Allan Gray Australia, which is a Sigma investor, said he believed the offer for API seemed mistimed, given it had emerged in the middle of a bidding war by Wesfarmers.
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