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Wesfarmers bowls up bargain basement bid for Priceline

Sure there are some API’s retail outlets, like those in the heart of Australian CBDs, that may not bounce back when the pandemic is in the rear-view mirror but it’s fair to assume that this is a classic recovery stock that has temporarily hit on hard times.

In contrast, most of Wesfarmers’ retail brands experienced a sales bonanza during 2020 COVID as working from home drove up sales for Officeworks, DIY handymen/women stormed the shelves at Bunnings and consumers flush with cash shopped at discount department stores, Kmart and Target.

Instead, API issued a profit warning on Monday for the remainder of its August 2021 financial year on the back of the recent spate of lockdowns. Melbourne’s June lockdown was bad enough but there is a spectre of Sydney’s latest episode lasting for a month, so API’s earnings may suffer even more than is currently anticipated.

Before the onset of COVID and again in April this year API shares were trading at the same price that Wesfarmers is currently offering – $1.38.

So yes – this offer is the definition of opportunistic.

API, which owns Priceline pharmacies, has received a takeover offer from Wesfarmers.

API, which owns Priceline pharmacies, has received a takeover offer from Wesfarmers.Credit:Jessica Hromas

But equally Wesfarmers is legendary for its bargain hunting prowess and its patience. This part of the healthcare sector has been on Wesfarmers’ list for years and the decision by API’s major shareholder to sell out was Wesfarmers’ opportunity to pounce.

And given Wesfarmers’ robust balance sheet, an acquisition of API’s size doesn’t carry much risk.

While not spelling it out, the response from API looks like the offer will be rejected.

But it does provide Wesfarmers with a platform to move into a new industry – and one that it believes has plenty of growth potential – both organic and through acquisitions.

There is no doubt that Wesfarmers’ expertise in retail, online, distribution, and data could enhance API’s performance over time. And becoming another arm of the conglomerate could give the health additional capital.

Wesfarmers has rightly earned its master class status in operating retail businesses.

But it is incumbent on API’s management to get Wesfarmers to pay up.

It has told shareholders to sit tight while it assesses the offer but noted the indicative proposal from Wesfarmers had been made at a time when COVID restrictions had resulted in store and clinic closures that had significantly impacted the company’s performance.

While not spelling it out, the response from API looks like the offer will be rejected.

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While the spread of the pandemic in Sydney perversely plays into Scott’s rhetoric that the path of the virus, its duration and its damage to the finances of companies like API is unclear, he clearly takes the view that getting a handle on COVID is in the nation’s best interest.

He continues to be an avid lobbyist for rolling out the vaccine as soon as possible.

He has joined many business leaders who have raised concerns about the spread of the Delta variant.

That said Wesfarmers stores including Bunnings and Kmart have remained open during the latest Sydney wave.

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