Australian pharmaceutical giant API dropped 12 percent on Friday after Woolworth’s abandoned its bid for the company.
The move clears the way for Wesfarmers to acquire API, which owns the Priceline drug store chain.
Woolworth said it could not deliver the returns it had promised to investors if it took a majority stake in the company.
Wesfarmers, which used to operate Coles supermarkets, now owns 19.3 percent of API.
Wesfarmers sweetened its bid for the company on July 12 to $1.48 a share.
Although Woolworths bid $1.75 a share last month, Wesfarmers refused to sell out and left Woolworths with a majority stake in the company.
Woolworths started a due diligence process regarding its bid for API. However, it was not able to meet its financial commitments.
Woolworth thanked API’s board and management team for their support during the due diligence process.
Sources said the company failed to impress due to its strategy and plans for return on investment.
The decision by Woolworth to abandon the takeover battle leaves the door open for Weserfarmers to acquire API.
In a statement, API said its board and management team remained focused on the company’s operations and strategy.
The $1.45 per share offer, which represents a 35.4 percent premium to the company’s closing share price on July 9, is unconditional.
In September, Australian private equity firm Sigma proposed to merge with API. However, this proposal was withdrawn after its biggest investor, criticized the company’s poor allocation of capital.
API, which operates the Priceline Pharmacy and Soul Pattinson Chemists chains, closed down 12.4 percent on Friday.
After Woolworth’s bid was rejected, Wesfarmers reached out to the community pharmacies of Priceline to tell them that they would not be affected by the proposed merger.
Wesfarmers warned that the proposed merger would create a major overlap in the health and beauty products sold by the supermarkets and pharmacies.
Wesfarmers noted that the company was confident that it would be able to get approval from Australia’s competition watchdog for its proposed buyout of API.
Under the proposed acquisition, Wesfarmers would use its e-commerce and data capabilities to enhance the online offer of API.
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