=DJ 2nd UPDATE: Australia's API Soars 20% On M&A Speculation
(Adds comment by Sigma)
By Andrew Harrison Of DOW JONES NEWSWIRES
MELBOURNE (Dow Jones)--Emerging as the next likely local takeover target, Australian Pharmaceutical Industries Ltd. (API.AU) shares rose as much as 20% Wednesday after the company said it has received a number of approaches about its ownership. Speculation this week about a A$700 million-plus (US$515 million) bid for the generic drug maker and drug store distributor has boosted its stock to levels before its six week trading halt after finding a A$17.2 million black hole in accounts. At the moment, analysts estimate about there is about A$15 billion of takeover activity in the Australian market as private equity buyers find hidden value in local stocks. This could rise to well above A$30 billion if retailer Coles Myer Ltd. (CML.AU) falls to a bid from a syndicate led by Kohlberg Kravis Roberts & Co. "These approaches have been of an informal nature," API said in a statement after its stock soared in the morning session. "In line with its fiduciary duties, the board will consider any bona fide proposals, which might be put to it by those parties," the company said, without naming the parties. API shares rose 43 cents or 19.2% to A$2.67, its highest closing level since May 10, with analysts tipping rival drug store distributors Symbion Health Ltd. (SYB.AU) and Sigma Pharmaceuticals Ltd. (SIP.AU) as potential bidders. "Management's focus is on restoring the business' performance," said Rob Tassie, an API spokesman. API has been regarded as a possible takeover target after its shares tumbled 19% on Aug. 22 following the halt during which it sacked its chief financial officer and its chief executive resigned. The company said after the close of trade it expects lower first-half earnings and higher costs arising from the investigation into its accounting problems. More information on its operational performance will be issued at Thursday's annual meeting in Sydney. API supplies Chemworld and Soul Pattinson branded drug stores and operates Priceline and Price Attack beauty product and cosmetics stores and House homewear shops. Last month API reported a 41% slump in annual net profit after hole in its accounts forced a writedown. API delayed the release of its results by a month as forensic accountants tried to reconcile discrepancies picked up during the changeover to a new computer system.
Symbion Not Talking To API Yet
The protracted delay in releasing its accounts resulted in the resignation of chief executive Jeff Sher, who was replaced by strategic development leader Stephen Roche, and the firing of chief financial officer Daniel Lucas. Symbion Health chief executive Rob Cooke said his company hasn't approached API about a takeover. "We would welcome any industry consolidation and a chance to participate on the right terms and conditions," Cooke added in an interview with Dow Jones Newswires. Sigma chief executive Elmo de Alwis said his company hasn't approached API. "The industry would benefit from some form of consolidation or rationalization," de Alwis said. "We don't believe the efficiency is optimal, so therefore if there was an opportunity Sigma would be keen to participate in any such opportunity, whether it happens with API or Symbion or anybody else," he said. API, Symbion and Sigma each hold about a third of the pharmacy distribution business with a new entrant DHL Excel now licensed to wholesale drugs. Australia's antitrust regulator may allow a takeover of API after rejecting a proposed merge with Sigma in 2001 on competition concerns, analysts said. "Now there is a fourth participant with DHL Excel in the market, it changes the landscape," said Warren Jeffries, an analyst at Austock Ltd. in Melbourne. "Drug wholesaling margins have become very skinny with Sigma, the market leader, only getting 2.6% on the EBIT line and API and Symbiom 1.5-2%," said Jeffries, who recommends clients "buy" Symbion and Sigma rather than API. "With four players, not three, there's more of an argument that consolidation is more appropriate." Changes to the industry, including a fourth participant, may result in a different ruling five years later, Cooke said. A consolidation of back-room functions would benefit the industry, he said. "At the moment there is a lot of duplication in the industry. We each have large warehouses. We each have large truck fleets following each other." Sigma's de Alwis agreed the three companies could cooperate to cut costs. "We haven't any specific approach, but API knows, just as Symbion knows that if there was an opportunity for us to do something together that would deliver value that we would certainly be interested," he said. Analysts said API's sale will need the support of Washington H. Soul Pattinson and Co. (SOL.AU), which has a 21% stake. Soul Pattinson executive chairman Robert Millner declined to comment. "I have no comment to make and don't know anything," Soul's Millner said. "I notice the shares are well up this morning but I can't help you."
-By Andrew Harrison, Dow Jones Newswires; 61-3-9671-4323; [email protected]
Alex Wilson also contibuted to this article. -Edited by Ian Pemberton
(END) Dow Jones Newswires September 27, 2006 04:09 ET (08:09 GMT) Copyright (c) 2006 Dow Jones & Company, Inc.
Wednesday 27 September 2006 18:09:34:630 AEST
API Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
