Woolworths Group (ASX: WOW) has walked away from its plans to acquire Australian Pharmaceutical Industries (ASX: API) for $872 million, around a month after outbidding Wesfarmers (ASX: WES) by $108 million in the hope of bringing 470 Priceline pharmacies into its national retail network.
In an ASX announcement released today, the retail giant explained it was “not able to validate the financial returns it requires in line with the group’s allocation framework".
“We are grateful to the board and leadership team of API for their consecutive engagement and support throughout the due diligence process,” Woolworths Group CEO Brad Banducci add.
In early December Banducci had said API would be a "fantastic addition" to the group by capturing the large and fast-growing category of health and wellness.
The tilt for $1.75 per share came while Wesfarmers and API were already working through a scheme of implementation deed (SID) for a planned takeover worth $764 million, itself the result of takeover attempts ongoing since July that had also temporarily brought Sigma Healthcare (ASX: SIG) into the picture.
Wesfarmers - known for such brands as Bunnings, Target, Officeworks and Catch.com.au - took a 19.3 per cent stake in its desired target and heaped on the pressure in early-October, noting it would vote against any scheme put forward by Woolworths Group.
"Since announcing our proposal, we’ve continued to develop our plans for the API business. We have met with and listened to representatives from across the sector and we’re confident our proposal supports community pharmacists and their businesses, for the long-term," Wesfarmers managing director Rob Scott said at the time.
"Pharmacists face various competitive pressures and Wesfarmers is uniquely placed to support the growth of community pharmacies including Priceline franchisees."
Wesfarmers noted that key API stakeholders, including community pharmacists and Priceline franchisees, had expressed concern about Sister Club customer data being shared with loyalty programs, where there is significant overlap with product ranges sold in pharmacies.
In recognition of the competitive overlap between API and supermarkets, Wesfarmers announced it had undertaken to keep all API customer data separate from Coles, which demerged from Wesfarmers in 2018 although both companies remain joint venture partners in Flybuys, the second largest supermarket-anchored loyalty program in Australia.
The Pharmacy Guild of Australia took note of the decision, claiming highlighted the recognition that providing healthcare and delivering quality of use of medicines was different from the provision of normal items of commerce.
"The Guild acknowledges and thanks Woolworths for its interest in our sector,” a Pharmacy Guild spokesperson said.
“We also would like to thank them for their consultation with the Guild throughout the process.
“In addition, the Guild would like to thank Woolworths for its swift commitment to a voluntary code of practice for limiting the sale of Rapid Antigen Tests to help ensure more people have access to them.”
API also owns the anti-ageing, acne and laser clinics Clear Skincare and Soul Pattison Chemist, the latter in connection to Washington H. Soul Pattinson (ASX: SOL) which owns 19.3 per cent of API.
API shares fell 12.14 per cent this morning to $1.52 per share, just shy of the $1.55 per share entailed in the scheme of implementation deed with Wesfarmers.
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