Woolworths withdraws its non-binding proposal to acquire API

The supermarket giant says it has been ‘unable to validate’ the financial data it needs during due diligence of the Priceline and Soul Pattinson owner.

Thanks but no thanks, says Woolworths CEO Brad Banducci. Picture: John Feder

Australian Pharmaceutical Industries, which operates the Price­line chain of chemists, was hit by an investor sell-off on Friday after supermarket retailer Woolworths abruptly pulled an $827m takeover offer.

Woolworths made its $1.75-a- share offer last month, setting up a showdown with its retailing rival Wesfarmers, which had already offered $1.55 a share.

Wesfarmers, which runs the Bunnings Warehouse, Kmart and Target chains, has also built up a 19.3 per cent stake in API – which also runs the Soul Pattinson chain and a wholesale business.

API had gone so far as having its board vote to approve the Wesfarmers deal in November.

However, the departure of Woolworths from the race for the company pushed API stock down more than 12.4 per cent on Friday, falling 22c to close at $1.52.

In a statement, Woolworths said it had completed a “comprehensive due diligence process” and decided to withdraw its proposal “as it had not been able to validate the financial returns in line with the group’s capital allocation framework”.

In a statement, API said the deal with Wesfarmers “remains in place and is on track”.

The Wesfarmers acquisition requires Australian Competition & Consumer Commission approval, expected next month.

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.

But the Woolworth bid faced scepticism – if not hostility – from the Pharmacy Guild, the powerful lobby group representing the country’s community chemists.

“Why is a company with interests in the alcohol, tobacco, gambling and nightclub industries wanting to move into healthcare?” a guild spokesman had said when the proposal was revealed.

At the time, Woolworths CEO Brad Banducci had appealed to pharmacists promising not to “disrupt” the sector, after the industry expressed concern about the supermarket chain’s plans.

“We are here to help strengthen it,” Mr Banducci said in an open letter to the industry.

“We strongly believe that a strong local community pharmacy health model is key to the health and wellbeing of our local communities and our nation overall.”

API is being advised by Macquarie on the transaction, while Woolworths had engaged Jarden Australia and Morgan Stanley.

Despite the fall in the share price on Friday, investors are still well ahead of where they were before suitors began circling API.

Wesfarmers’ first unsolicited offer, at $1.38, valued the pharmacy group at less than $700m.

Wesfarmers increased its offer in September.

Woolworths’ retreat is the second withdrawal from the field in the battle for API, after Sigma Healthcare said in November it would withdraw its offer.

Sigma had lobbed a non-binding $773.3m proposal to merge with rival API in September last year in a cash-and-scrip deal. This was just two years after API had made a bid to merge with Sigma.

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