McKesson to Buy Celesio in Deal After Earlier Offer Failed

Jan 24, 2014 4:18 pm ET

(Updates with McKesson closing price in eighth paragraph.)

Jan. 24 (Bloomberg) -- McKesson Corp., the largest U.S. drug distributor, agreed to acquire Celesio AG just 10 days after a failed tender offer for the European company.

McKesson will buy majority owner Franz Haniel & Cie GmbH’s holding in Celesio for 23.50 euros a share, the same price as its previous bid, the San Francisco-based company said yesterday in a statement. Separately, McKesson purchased Celesio convertible bonds from hedge fund Elliott Management Corp., providing the distributor with ownership of more than 75 percent of Celesio’s shares.

The deal revives a 4 billion-euro ($5.4 billion) deal that will boost McKesson profit and give it added clout in buying generic drugs for distribution. Stuttgart, Germany-based Celesio has 132 wholesale branches supplying 65,000 pharmacies and hospitals, mostly in 14 European countries.

“The long-running saga of the McKesson/Celesio transaction appears to be finally over,” Ross Muken, an analyst at ISI Group LLC in New York, said in a note to clients. “We continue to view this deal as an important strategic transaction for McKesson given the expanded geographic reach as well as the increased generic purchasing scale the joint company will garner.”

Tender Offer

McKesson will start a tender offer for the rest of Celesio’s shares at 23.50 euros each. It will pay for a portion of the acquisitions with cash and use a temporary bridge loan to fund the remaining balance. McKesson said it will obtain permanent financing after both deals close, expected within the next 10 business days.

Celesio climbed 3.7 percent to close at 24.91 euros in Frankfurt. The stock is trading above the 23.50-euro offer price, with some investors betting McKesson will pay more to shareholders who refuse to sell, Volker Braun, an analyst with Commerzbank AG in Frankfurt, said in a phone interview.

Buyers of German companies can squeeze out minority shareholders once they’ve acquired 90 percent or 95 percent. The remaining investors regularly force the buyer to pay a higher price than the original bid before selling their shares, resulting in a profit for the holdouts.

McKesson rose less than 1 percent to $173.72 at 4:02 p.m. in New York. The stock increased 64 percent in the past year.

Earnings Boost

The transaction will add $1 a share to $1.20 a share to McKesson’s earnings in the first year after the deals close, assuming the company obtains the remainder of the outstanding shares.

McKesson expects savings of $275 million to $325 million by the fourth year after two companies are combined.

“We are excited to move forward with our acquisition of Celesio,” said John H. Hammergren, McKesson’s chairman and chief executive officer. “Our customers will benefit from the increased scale, supply chain expertise and sourcing capabilities of the combined company, together with enhanced access to innovative technology and business services.”

“I am pleased that the business combination with McKesson can go ahead,” said Marion Helmes, Celesio’s chief financial officer, said in a statement. “With this step we lay an excellent foundation to achieve profitable growth and attain market-leading positions.”

McKesson agreed Oct. 24 to buy Haniel’s 50.01 percent stake in Celesio for 23 euros a share and began a tender offer for the remaining publicly traded shares. Elliott built up a 25 percent stake in Celesio and opposed the offer as too low. McKesson raised the bid Jan. 9 to 23.50 euros a share.

Ultimately McKesson won the backing of investors with 72.33 percent of Celesio’s stock, falling short of the 75 percent threshold required for the acquisition.

Since Walgreen Co.’s 2012 deal to buy 45 percent of Alliance Boots, the owner of the largest U.K. pharmacy chain, drug distributors have been examining their positions in Europe and looking at ways to cut costs. A Celesio acquisition will allow McKesson to buy as much as $10 billion a year in generic drugs for distribution, compared with $6 billion to $7 billion on its own.

--With assistance from Naomi Kresge in Berlin and Allison Connolly in London. Editors: Phil Serafino, Bruce Rule