Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Australian Pharmaceutical Industries / Event-Driven

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<li>Grocer giant <strong><a href="https://www.smartkarma.com/entities/woolworths-ltd" target="_blank" data-smartkarma-citation="entities:500:1" rel="noopener">Woolworths Ltd (WOW AU)</a></strong> has made a non-binding Offer of <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02461347-3A582711?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">A$1.75/share</a> for <a href="https://www.smartkarma.com/entities/australian-pharmaceutical-industries-limited" target="_blank" data-smartkarma-citation="entities:19399:1" rel="noopener">Australian Pharmaceutical Industries (API AU)</a>, ~12.9% above <a href="https://www.smartkarma.com/entities/wesfarmers-ltd" target="_blank" data-smartkarma-citation="entities:1104:1" rel="noopener">Wesfarmers Ltd (WES AU)</a>'s firm Offer of $1.55/share.</li>
<li>API has granted confirmatory due diligence to facilitate a binding offer. A firm Offer would be subject to ACCC approval.</li>
<li>Wesfarmers SID includes a matching right in favour of Wesfarmers which is exercisable before API enters into any binding agreement in respect of a Competing Proposal.</li>
</ul>


Grocer giant Woolworths Ltd (WOW AU) has made a non-binding Offer of A$1.75/share for Australian Pharmaceutical Industries (API AU), ~12.9% above Wesfarmers Ltd (WES AU)'s firm Offer of $1.55/share.
API has granted confirmatory due diligence to facilitate a binding offer. A firm Offer would be subject to ACCC approval.
Wesfarmers SID includes a matching right in favour of Wesfarmers which is exercisable before API enters into any binding agreement in respect of a Competing Proposal.


Woolies Trumps Wesfarmers' Offer for Aussie Pharma

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/australian-pharmaceutical-industries-limited" target="_blank" data-smartkarma-citation="entities:19399:1" rel="noopener">Australian Pharmaceutical Industries (API AU)</a> announced a non-binding indicative offer from <a href="https://www.smartkarma.com/entities/woolworths-ltd" target="_blank" data-smartkarma-citation="entities:500:1" rel="noopener">Woolworths Ltd (WOW AU)</a> for A$1.75 per share, a 12.9% premium to <a href="https://www.smartkarma.com/entities/wesfarmers-ltd" target="_blank" data-smartkarma-citation="entities:1104:1" rel="noopener">Wesfarmers Ltd (WES AU)</a>’ offer of A$1.55. </li>
<li>Woolworths notes that there is the potential to improve the offer price with the benefit of due diligence, which has been granted. </li>
<li>Wesfarmers has matching rights. We think that the presence of two deep-pocketed suitors, suggests at least another round of bidding.  </li>
</ul>



Australian Pharmaceutical Industries (API AU) announced a non-binding indicative offer from Woolworths Ltd (WOW AU) for A$1.75 per share, a 12.9% premium to Wesfarmers Ltd (WES AU)’ offer of A$1.55. 
Woolworths notes that there is the potential to improve the offer price with the benefit of due diligence, which has been granted. 
Wesfarmers has matching rights. We think that the presence of two deep-pocketed suitors, suggests at least another round of bidding.  


Woolworths' API Bid Likely to Kick off a Bidding War with Wesfarmers

<p><a href="https://www.smartkarma.com/entities/australian-pharmaceutical-industries-limited" target="_blank" data-smartkarma-citation="entities:19399:1" rel="noopener">Australian Pharmaceutical Industries (API AU)</a> is a vertically integrated wholesaler, franchise owner and retailer. API has received a binding proposal and entered a scheme implementation deed (SID) with <a href="https://www.smartkarma.com/entities/wesfarmers-ltd" target="_blank" data-smartkarma-citation="entities:1104:1" rel="noopener">Wesfarmers Ltd (WES AU)</a>. The offer price of A$1.55 per share (unchanged from the 16 September revised indicative offer) is a 35.4% premium to the unaffected price of A$1.145 (9 July).</p><p>In its full-year results announced on 28 October, API declared a fully franked final dividend of A$0.02 per share to be paid out on 15 December. API will also pay a fully franked special dividend of A$0.03 per share as part of the scheme. The offer price will be reduced by these dividend payouts. </p><p>As a reminder, API was subject to a contested bid between Wesfarmers and <a href="https://www.smartkarma.com/entities/sigma-healthcare-ltd" target="_blank" data-smartkarma-citation="entities:15966:1" rel="noopener">Sigma Healthcare (SIG AU)</a>. On 27 September, API revealed a non-binding indicative offer from Sigma comprising A$0.35 cash and 2.05 Sigma shares per API share. However, on 7 October, Wesfarmers exercised a call option over Washington H Soul Pattinson’s 19.3% stake in API. Subsequently, Sigma withdrew its offer on 5 November “<em>after further assessment and in the context of the competitive bid process with its changing transaction and economic considerations.</em>”</p><p>The scheme is conditional on API shareholder approval and ACCC approval. The scheme meeting and completion are targeted for the first quarter of 2022.  </p><div class="content-highlight"><p>We think that Wesfarmers’ offer is reasonable in the context of historical multiples and share prices. Wesfarmers aims to make API the foundation of its new Healthcare division, which will be used as the springboard to grow its presence in the health, wealth and beauty sectors. At the last close price of A$1.54, the gross spread is 0.6% and the annualised spread to the implementation date (end of 1Q) is 1.6%.</p></div>

Australian Pharmaceutical Industries (API AU) is a vertically integrated wholesaler, franchise owner and retailer. API has received a binding proposal and entered a scheme implementation deed (SID) with Wesfarmers Ltd (WES AU). The offer price of A$1.55 per share (unchanged from the 16 September revised indicative offer) is a 35.4% premium to the unaffected price of A$1.145 (9 July).In its full-year results announced on 28 October, API declared a fully franked final dividend of A$0.02 per share to be paid out on 15 December. API will also pay a fully franked special dividend of A$0.03 per share as part of the scheme. The offer price will be reduced by these dividend payouts. As a reminder, API was subject to a contested bid between Wesfarmers and Sigma Healthcare (SIG AU). On 27 September, API revealed a non-binding indicative offer from Sigma comprising A$0.35 cash and 2.05 Sigma shares per API share. However, on 7 October, Wesfarmers exercised a call option over Washington H Soul Pattinson’s 19.3% stake in API. Subsequently, Sigma withdrew its offer on 5 November “after further assessment and in the context of the competitive bid process with its changing transaction and economic considerations.”The scheme is conditional on API shareholder approval and ACCC approval. The scheme meeting and completion are targeted for the first quarter of 2022.  We think that Wesfarmers’ offer is reasonable in the context of historical multiples and share prices. Wesfarmers aims to make API the foundation of its new Healthcare division, which will be used as the springboard to grow its presence in the health, wealth and beauty sectors. At the last close price of A$1.54, the gross spread is 0.6% and the annualised spread to the implementation date (end of 1Q) is 1.6%.

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<p>On the 12 July, wholesale and retail pharmacy operator <a href="https://www.smartkarma.com/entities/19399" target="_blank" data-smartkarma-citation="entities:19399:1" rel="noopener">Australian Pharmaceutical Industries (API AU)</a> (API) <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02394187-3A570533?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> an indicative, non-binding Offer from <a href="https://www.smartkarma.com/entities/wesfarmers-ltd" target="_blank" data-smartkarma-citation="entities:1104:1" rel="noopener">Wesfarmers Ltd (WES AU)</a> by way of a Scheme at $1.38/share,  a 20.5% premium to last close. </p>
<p>Separately, Wesfarmers entered into an agreement with API's largest shareholder <a href="https://www.smartkarma.com/entities/washington-h-soul-pattinson-and-co-ltd" target="_blank" data-smartkarma-citation="entities:6054:1" rel="noopener">Washington H. Soul Pattinson and Co. Ltd (SOL AU)</a> (WHSP), such that WHSP will vote its 19.3% interest in favour of Wesfarmers' proposal, in the absence of a superior Offer. Additionally, the agreement also included an option for Wesfarmers to acquire WHSP’s shares in the event Wesfarmers intended to match or exceed any competing proposal which API received.</p>
</div>
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<p>The proposal appeared opportunistic and the API board agreed and rejected the proposed Offer on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02400478-3A571605?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">29 July</a> on grounds it undervalued API, was not compelling, and was not in the best interest of shareholders. </p>
</div>
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<p>On the 16 September Wesfarmers and API entered into a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02422163-3A575967?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">process deed</a> after Wesfarmers bumped the Offer by 12.3% to A$1.55/share. A fully franked dividend of A$0.05/share was permitted (including the A$0.02/share final dividend <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02442833-3A579494?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">declared</a> by API for the financial year ended 31 August 2021), which will reduce the cash consideration if paid. WHSP remained supportive. API granted Wesfarmers exclusive due diligence until the 16 October. The proposal was also subject to ACCC clearance.</p>
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<p>API then <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02426356-3A576689?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> on the 27 September it had received a non-binding proposal from <a href="https://www.smartkarma.com/entities/sigma-healthcare-ltd" target="_blank" data-smartkarma-citation="entities:15966:1" rel="noopener">Sigma Healthcare (SIG AU)</a>. API shareholders would receive an implied A$1.57/share under Sigma’s cash-and-stock proposal. A similar franked dividend, to the one in the Wesfarmers' proposal, was also permitted. Confirmatory due diligence was afforded. Of interest, this was the third attempt by Australia's two largest pharmaceutical distributors to merge: the first was rejected by the ACCC in 2002, and the second was rejected by Sigma (when API was the acquiror) in 2019 (<em><a href="https://skr.ma/araq7" target="_blank" rel="noopener">API Tilts at Sigma Healthcare: Expect More</a></em>).</p>
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<div id="ember4003" data-smartkarma-discusison="113469">
<div data-ember-action="" data-ember-action-4004="4004">
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<p>Pursuant to the undertaking agreement with WHSP, Wesfarmers acquired a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02432448-6A1054678?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">19.3% stake</a> in API on 7 October. Sigma subsequently dropped its proposal on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02448000-3A580348?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">5 November</a>. </p>
<p>That left Wesfarmers in the driving seat. DD was expected to expire on the 16 October.  In its FY21 results API <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02442841-3A579496?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">said</a> it not received and agreed to a final offer with Wesfarmers. But I couldn't see Wesfarmers simply sitting on a 19.3% stake. It's not their MO to make small acquisitions and sit tight. </p>
<p><strong>The New News</strong></p>
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<p>Today Wesfarmers entered into a Scheme Implementation Deed (SID) with API for a cash consideration of $1.55/share, including the payment of fully franked dividends up to a maximum of A$0.05/share per API share.</p>
<p>The transaction has unanimous API board support. The Scheme is subject to API shareholder approval, ACCC approval, no material adverse change, and no prescribed occurrences.</p>
<p>The Scheme is expected to be wrapped up in the 1Q22.</p>
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<div>
<p>More below the fold.</p>
</div>


On the 12 July, wholesale and retail pharmacy operator Australian Pharmaceutical Industries (API AU) (API) announced an indicative, non-binding Offer from Wesfarmers Ltd (WES AU) by way of a Scheme at $1.38/share,  a 20.5% premium to last close. 
Separately, Wesfarmers entered into an agreement with API's largest shareholder Washington H. Soul Pattinson and Co. Ltd (SOL AU) (WHSP), such that WHSP will vote its 19.3% interest in favour of Wesfarmers' proposal, in the absence of a superior Offer. Additionally, the agreement also included an option for Wesfarmers to acquire WHSP’s shares in the event Wesfarmers intended to match or exceed any competing proposal which API received.


The proposal appeared opportunistic and the API board agreed and rejected the proposed Offer on the 29 July on grounds it undervalued API, was not compelling, and was not in the best interest of shareholders. 


On the 16 September Wesfarmers and API entered into a process deed after Wesfarmers bumped the Offer by 12.3% to A$1.55/share. A fully franked dividend of A$0.05/share was permitted (including the A$0.02/share final dividend declared by API for the financial year ended 31 August 2021), which will reduce the cash consideration if paid. WHSP remained supportive. API granted Wesfarmers exclusive due diligence until the 16 October. The proposal was also subject to ACCC clearance.

API then announced on the 27 September it had received a non-binding proposal from Sigma Healthcare (SIG AU). API shareholders would receive an implied A$1.57/share under Sigma’s cash-and-stock proposal. A similar franked dividend, to the one in the Wesfarmers' proposal, was also permitted. Confirmatory due diligence was afforded. Of interest, this was the third attempt by Australia's two largest pharmaceutical distributors to merge: the first was rejected by the ACCC in 2002, and the second was rejected by Sigma (when API was the acquiror) in 2019 (API Tilts at Sigma Healthcare: Expect More).





Pursuant to the undertaking agreement with WHSP, Wesfarmers acquired a 19.3% stake in API on 7 October. Sigma subsequently dropped its proposal on the 5 November. 
That left Wesfarmers in the driving seat. DD was expected to expire on the 16 October.  In its FY21 results API said it not received and agreed to a final offer with Wesfarmers. But I couldn't see Wesfarmers simply sitting on a 19.3% stake. It's not their MO to make small acquisitions and sit tight. 
The New News






Today Wesfarmers entered into a Scheme Implementation Deed (SID) with API for a cash consideration of $1.55/share, including the payment of fully franked dividends up to a maximum of A$0.05/share per API share.
The transaction has unanimous API board support. The Scheme is subject to API shareholder approval, ACCC approval, no material adverse change, and no prescribed occurrences.
The Scheme is expected to be wrapped up in the 1Q22.


More below the fold.


Aussie Pharm (API AU) Enters Into Scheme With Wesfarmers

<p><a href="https://www.smartkarma.com/entities/australian-pharmaceutical-industries-limited" target="_blank" data-smartkarma-citation="entities:19399:1" rel="noopener">Australian Pharmaceutical Industries (API AU)</a> is a vertically integrated wholesaler, franchise owner and retailer. API has received a non-binding indicative offer from <a href="https://www.smartkarma.com/entities/sigma-healthcare-ltd" target="_blank" data-smartkarma-citation="entities:15966:1" rel="noopener">Sigma Healthcare (SIG AU)</a>. Sigma is offering cash and scrip comprising A$0.35 cash and 2.05 Sigma shares per API share. Sigma’s offer has an implied value of A$1.57 per share (based on Sigma’s share price on 24 September) and A$1.58 per share (Sigma’s last close price). Sigma’s offer of A$1.57 per share is a 37.1% premium to the unaffected price of A$1.145 (9 July prior to Wesfarmers' first proposal).  </p><p>As a reminder on 16 September, API revealed a revised non-binding indicative offer of A$1.55 per share from <a href="https://www.smartkarma.com/entities/wesfarmers-ltd" target="_blank" data-smartkarma-citation="entities:1104:1" rel="noopener">Wesfarmers Ltd (WES AU)</a>. The Board announced an intention to unanimously recommend the revised offer subject to the entry into a binding scheme implementation deed following the completion of confirmatory due diligence that will end by 16 October. However, the Board has determined that the Sigma offer is superior and has decided to grant Sigma due diligence access.   </p><p>Sigma’s offer for API is just the latest M&amp;A round between these two names. In a role-reversal in October 2018, API bought a 12.95% stake in Sigma and followed it up with a scrip and cash bid worth A$0.686 per Sigma share at that time. Sigma rejected API’s bid as it did not reflect the long-term value of the business which prompted API to dispose of its stake.</p><p>Sigma argues that its offer is superior to Wesfarmers’ offer as API shareholders can benefit from revenue diversification, significant synergies (target of A$45 million annual cost synergies), greater scale (the combined entity will be Australia’s largest pharmaceutical wholesaler) and franking credits. Sigma’s proposal requires clearance from the Australian Competition and Consumer Commission (ACCC). API was said to have ensured clearance from the ACCC was possible when it made its failed bid for Sigma in 2018.  </p><div class="content-highlight"><p>Clearly, the implied value of Sigma’s offer is less certain and will fluctuate based on Sigma’s share price. We think that there is another round to this contested takeover battle. At the last close price of A$1.51, API’s shares are trading at a -2.6% discount to Wesfarmers’ cash offer of A$1.55 and a -4.4% discount to Sigma’s offer of A$1.58 (based on Sigma’s last close price).</p></div>

Australian Pharmaceutical Industries (API AU) is a vertically integrated wholesaler, franchise owner and retailer. API has received a non-binding indicative offer from Sigma Healthcare (SIG AU). Sigma is offering cash and scrip comprising A$0.35 cash and 2.05 Sigma shares per API share. Sigma’s offer has an implied value of A$1.57 per share (based on Sigma’s share price on 24 September) and A$1.58 per share (Sigma’s last close price). Sigma’s offer of A$1.57 per share is a 37.1% premium to the unaffected price of A$1.145 (9 July prior to Wesfarmers' first proposal).  As a reminder on 16 September, API revealed a revised non-binding indicative offer of A$1.55 per share from Wesfarmers Ltd (WES AU). The Board announced an intention to unanimously recommend the revised offer subject to the entry into a binding scheme implementation deed following the completion of confirmatory due diligence that will end by 16 October. However, the Board has determined that the Sigma offer is superior and has decided to grant Sigma due diligence access.   Sigma’s offer for API is just the latest M&amp;A round between these two names. In a role-reversal in October 2018, API bought a 12.95% stake in Sigma and followed it up with a scrip and cash bid worth A$0.686 per Sigma share at that time. Sigma rejected API’s bid as it did not reflect the long-term value of the business which prompted API to dispose of its stake.Sigma argues that its offer is superior to Wesfarmers’ offer as API shareholders can benefit from revenue diversification, significant synergies (target of A$45 million annual cost synergies), greater scale (the combined entity will be Australia’s largest pharmaceutical wholesaler) and franking credits. Sigma’s proposal requires clearance from the Australian Competition and Consumer Commission (ACCC). API was said to have ensured clearance from the ACCC was possible when it made its failed bid for Sigma in 2018.  Clearly, the implied value of Sigma’s offer is less certain and will fluctuate based on Sigma’s share price. We think that there is another round to this contested takeover battle. At the last close price of A$1.51, API’s shares are trading at a -2.6% discount to Wesfarmers’ cash offer of A$1.55 and a -4.4% discount to Sigma’s offer of A$1.58 (based on Sigma’s last close price).

API in Role Reversal as Its Receives a Bid from Sigma

Australia

Sigma Healthcare Limited wholesales and distributes pharmaceutical products. The Company offers prescription, over-the-counter, and generic drugs. Sigma Healthcare serves customers in Australia.

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Sigma Healthcare (SIG AU)

Woolies Trumps Wesfarmers' Offer for Aussie Pharma

There's probably a further 10-15% here with two large players in the mix. I think we could see a $2/handle. I'd buy on any weakness.

David Blennerhassett

Woolworths' API Bid Likely to Kick off a Bidding War with Wesfarmers

API announced an offer from Woolworths for A$1.75 per share, a 12.9% premium to Wesfarmers offer of A$1.55. The presence of two deep-pocketed...

Arun George

API Enters a SID with Wesfarmers

API has entered a SID with Wesfarmers at an offer price of A$1.55 cash per share. We think that Wesfarmers’ offer is reasonable in the context of...

Arun George

Aussie Pharm (API AU) Enters Into Scheme With Wesfarmers

Trading at a 0.6%/2.3% gross/annualised spread, assuming late February completion. Unless you are a zero-rate or a low-rate taxpayer who can...

David Blennerhassett

API in Role Reversal as Its Receives a Bid from Sigma

Sigma has disclosed a competing cash and scrip offer from API worth A$1.57 per share vs Wesfarmers' all-cash offer of A$1.55. We think that there...

Arun George

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