Woolworths faces harder road in API tilt

Analysts say supermarket giant Woolworths has a harder road to travel than bidding rival Wesfarmers to win over the competition regulator and the powerful Pharmacy Guild in its proposed takeover of Priceline Pharmacy chain owner Australian Pharmaceutical Industries.

UBS analyst Shaun Cousins said while Woolworths might eventually gain approval from the Australian Competition and Consumer Commission, “it will take time and there was greater ACCC risk” for Woolworths than Wesfarmers. This was because of the overlap between pharmacy sales and the health and beauty aisles in the 1000-plus supermarkets operated by Woolworths.

Mr Cousins also said the “Pharmacy Guild concerns appear greater” for Woolworths than Wesfarmers, in part because tobacco products make up about 8 per cent of Woolworths’ Australian food business sales, and Woolworths still holds a 14.6 per cent stake in the demerged Endeavour Group.

Endeavour is viewed as a “sin stock” because it owns 251 Dan Murphy’s superstores and 1392 BWS outlets selling beer, wine and spirits, and runs about 340 hotels and clubs, with 12,402 poker machines across them.

This makes Endeavour the largest owner of poker machines in Australia, and the country’s third-largest gaming operator after Crown Resorts and The Star.

The Pharmacy Guild is a powerful lobby group which has the ear of senior politicians in Canberra, and is determined to prevent pharmacists setting up dispensing booths for prescription products inside supermarkets. It wants to preserve the community pharmacy model where its 5500 members run stand-alone pharmacies.

Woolworths on Thursday made an indicative offer of $1.75 cash per share, less fully franked dividends, via a scheme of arrangement which comfortably tops Wesfarmers’ offer of $1.55 per API share.

API shares jumped 16.72 per cent to $1.74 on Thursday, and in early trading on Friday gained a further 1 per cent to $1.7525.

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