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Wesfarmers to block Woolworths’ bid for Australian Pharmaceutical Industries in takeover tussle

Sean Smith and Daniel NewellThe West Australian
API owns a portfolio of wholesale and retail businesses in the health, wellbeing and beauty sector, including Soul Pattinson and Pharmacist Advice brands.
Camera IconAPI owns a portfolio of wholesale and retail businesses in the health, wellbeing and beauty sector, including Soul Pattinson and Pharmacist Advice brands. Credit: PAUL MILLER/AAPIMAGE

Wesfarmers has drawn a line in the sand by ruling out a surrender to Woolworths over Australian Pharmaceutical Industries, challenging the target’s board to approve an offer that has no hope of achieving full ownership.

Announcing its intention to vote its 19.3 per cent stake in API and other shares it may buy against any bid by Woolworths, Wesfarmers also firmly aligned itself with Priceline franchisees and community pharmacists worried about supermarkets poaching their business.

Two weeks ago, Woolworths crashed Wesfarmers’ agreed $1.55-a-share offer for API, owner of the Priceline chain, by lobbing a significantly better $1.75-a-share proposal that values the Sydney-based group at $862 million.

However, Wesfarmers’ stake is proving a major hurdle after the company’s declaration on Wednesday, with the WA conglomerate also ruling out accepting any finalised Woolworths bid.

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The concerns of pharmacists worried about the growing power of supermarkets will also play to its favour.

Wesfarmers chief executive Rob Scott insisted on Wednesday that his group would make a better owner of API, as it was in a better position to support the growth of franchisees and community pharmacies because it was not conflicted by the ownership of a supermarket chain.

Surprisingly, Wesfarmers’ talks with pharmacies had revealed that many mistakenly believed the group still owned Coles, which was spun off three years ago.

They had also voiced “concern about competition and supermarkets and pharmacists, particularly in the non-prescription area”, such as health and beauty products, Mr Scott said.

“And that’s particularly sensitive for Priceline franchisees. The whole point of a Priceline franchise is to provide all the product and retail services to help a pharmacist grow their non-prescription side of the business, and their No.1 competitor by market share in health, personal care and beauty are the supermarkets.”

Wesfarmers has also promised Priceline franchisees that should its offer be successful, it will not share customer data accumulated under Priceline’s successful Sister Club loyalty program with other programs across the group. Notably, Wesfarmers remains a half-owner of the Coles-operated FlyBuys program.

Without a chain complicating the offer, Mr Scott said he was confident of the Wesfarmers offer gaining the approval of the Australian Competition and Consumer Commission.

“We are confident of getting ACCC approval because we don’t have much in the way of overlap,” he said.

Wesfarmers wants to use API as the foundation of a new healthcare business alongside its existing retail, chemicals and fertilisers, and industrial products divisions.

API owns a portfolio of wholesale and retail businesses, including not just Priceline, but the Soul Pattinson and Pharmacist Advice brands.

Australia’s powerful Pharmacy Guild has already suggested that Woolworths’ sale of cigarettes and remaining interests in pubs and pokies is incompatible with owning a pharmaceuticals and wellness business.

Wesfarmers shares closed 5¢ higher at $58.46, while API added 0.5¢ to $1.715.

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