Pharmaceutical wholesaler and retailer Australian Pharmaceutical Industries (ASX:API) got a boost this morning in the form of a takeover offer from Wesfarmers (ASX:WES).

Wesfarmers has offered $1.38 per share for the company (which runs Priceline Pharmacy and Clear Skincare clinics among other brands), representing a 20.5 per cent premium to Friday’s closing price.

While the premium is far from the greatest offered by a takeover bidder for an ASX company this year, shares rose to match it.

This was despite Australian Pharmaceutical Industries not yet backing the bid, even though it noted 19.3 per cent shareholder Washington H. Soul Pattinson intended to vote for it.

“The API board is undertaking an analysis of whether the Indicative Proposal is reflective of the long-term growth prospects of API and the expected short-term impacts of the pandemic-related lockdown restrictions,” it said.

Australian Pharmaceutical Industries (ASX:API)


Lockdowns bite the company

The company also released a trading update, separate to its response to the Wesfarmers bid, revealing the impact of recent lockdowns in Sydney and Melbourne.

It said it had been on track to achieve $75 million in underlying earnings at the end of May.

But the company now expects somewhere between $66 and $68 million, assuming no new lockdowns and New South Wales’ lockdown ends by the end of the month.

Otherwise, it warned earnings would take a $1 million hit every week from the end of July onwards.

Australian Pharmaceutical Industries also announced the results of a strategic review.

The biggest outcome was its decision to wind down its manufacturing operations in New Zealand, opting to outsource them in an attempt to lower its cost of goods. It told shareholders it anticipates a net effect of $24.5 million at an earnings level.

“By moving to outsourced contract manufacturing we will generate lower cost of goods and have greater continuity in product supply, both of which have been impeded by COVID-related impacts,” CEO Richard Vincent said.

The company said each Priceline store would be reviewed near the end of its lease, but its new Marsden Park distribution centre remained on time, within budget and would deliver dividends down the track.

“It is anticipated that this highly automated distribution centre will deliver a 20 per cent improvement in cost per unit with annualised savings in the order of $8 million EBITDA, flowing from the start of FY23,” it said.