ACCC commences review of Wesfarmers bid for API

The ACCC has commenced its review of Wesfarmers’ $763m takeover bid for API as a bidding war with rival Woolworths brews.

Wesfarmers is hoping to secure Australian Pharmaceutical Industries and its network of Priceline pharmacies. Picture: NCA NewsWire/Brenton Edwards

The competition regulator could take until February to finalise its review of Wesfarmers’ $763m offer for Priceline owner Australian Pharmaceutical Industries – a bid now trumped by an $873m proposal from Woolworths.

The Australian Competition & Consumer Commission on Monday began its review into the Wesfarmers bid, agreed to by the board last month.

The ACCC would also take an interest in any deal reached between Woolworths, the largest supermarket operator in the country – and API, which runs several pharmacy chains including Soul Pattinson Chemist.

The regulator has flagged an interest in how suppliers to Wesfarmers – which runs Bunnings, Officeworks, Kmart and Target – and API would be affected by the takeover proposal.

API is now considering a $1.75-a-share takeover offer – compared to the $1.55 offer from Wesfarmers – lobbed last week by Woolworths. The deep pockets of two retailers, and the sensitive nature of the sector, suggest the battle for API will be lengthy.

Equities analysts say there will be greater regulatory risk for the Woolworths offer, given the crossover of health and beauty products sold at Priceline, supermarkets and Big W.

“ACCC approval will be required given the overlap with health and beauty sales at pharmacies (including Priceline) for API and supermarkets and Big W for Woolworths,” UBS analyst Shaun Cousins wrote in a note to clients last week.

“ACCC approval arguably can be achieved … yet it will take time and there is greater ACCC risk for (Woolworths) than (Wesfarmers).”

However, JPMorgan analysts said competition in the pharmacy sector was likely to remain elevated given the presence of Chemist Warehouse in addition to independents and online health and beauty retailers.

Wesfarmers CEO Rob Scott, left, and chairman Michael Chaney. Picture: Colin Murty

API is also a pharmaceutical wholesaler and runs non-surgical skincare clinic business Clear Skincare and pharmacy retailer Soul Pattinson Chemist.

It is one of Australia’s largest health and beauty retailers and pharmaceutical distributors.

Credit Suisse added last week that in addition to retail competition concerns, Woolworths could “leverage its scale to advantage versus other wholesale suppliers of similar products to the pharmacy sector”.

Meanwhile, analysts at MST Marquee said the bidding war could be just beginning. “Both companies have the balance sheet. Both see improvements in Priceline’s sales and earnings,” MST Marquee analyst Craig Woolford wrote on Friday.

“Wesfarmers is likely to place a greater value on both the Priceline loyalty members and the platform API may create for a health division, in our view.

“As a result, the bidding is far from over in our view. A final outcome 20 per cent higher than the prevailing $1.75 bid from Woolworths is plausible.”

The Pharmacy Guild, which represents the nation’s community chemists, has already raised concerns about the possibility that API is acquired by Woolworths. “Why is a company with interests in the alcohol, tobacco, gambling and nightclub industries wanting to move into healthcare?” a guild spokesman said last week.

But the supermarket giant’s chief executive, Brad Banducci, told The Australian last week that he would hope to “partner with community pharmacists”.

Woolworths has sold off its ­liquor and hotels arms, but still has a sizeable business in selling tobacco at its supermarkets.