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Issue #583 | Forest Products

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2014 Media Kit
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McKesson raises bid to salvage $8.4 billion Celesio deal

By: | at 03:21 PM | Channel(s): International Trade  

U.S. drugs wholesaler McKesson raised its offer for German peer Celesio to about 6.2 billion euros ($8.4 billion) including debt, mollifying an activist hedge fund that had been blocking the deal.

McKesson increased its bid to 23.50 euros per Celesio share from the 23 euros it offered in October, the San Francisco-based company said.

The U.S. firm is seeking to forge a global leader in drugs distribution to boost its bargaining power with big pharmaceutical companies such as Novartis and Teva , in what could be the largest health-sector takeover in Germany in eight years.

McKesson, the largest U.S. drugs distributor and its closest rivals AmerisourceBergen and Cardinal Health, who command a combined 95 percent U.S. market share, have all been looking to team up with pharmacy chains or to grow abroad.

Celesio shares were trading at 24.00 euros at 1443 GMT on Thursday, just above the increased offer price, reflecting investors’ speculation that the deal would go through and that McKesson would likely offer a slight premium to buy out any remaining minority shareholders after taking control.

The German company has a drugs wholesale business and owns a network of pharmacies in Europe which trade under the Lloyds brand.

Celesio’s majority investor Franz Haniel & Cie backed the original 6.1 billion euro bid. But hedge fund Elliott Management Corp, the German company’s second-largest shareholder, said it was too low.

Spokesmen for McKesson and Elliott declined to give a total figure for the revised offer.

Based on the 0.50 euro per share increase and assuming there are about 204 million shares outstanding - including all those from Celesio’s two convertible bonds - the new offer is worth at least 100 million euros more than the original.

McKesson’s higher offer is contingent on the U.S. firm getting at least 75 percent of Celesio’s shares, including those from bonds that convert to shares. Its agreement with Elliott gets McKesson closer to reaching that goal by the deadline of midnight on Thursday.

Elliott, run by U.S. investor Paul Singer, said it has agreed to sell shares equivalent to at least 13 percent of Celesio’s equity capital, taking into account the dilutive effect of the convertible bonds.

Overall, convertible bonds would account for 16.7 percent of the company’s share capital if they were all converted.

The hedge fund also offered to sell all 4,866 convertible bonds it holds in Celesio, provided that the 75 percent threshold is reached. An Elliott spokesman declined to say how many shares those bonds convert to.

That means McKesson still needs smaller Celesio shareholders to tender their stock for the deal to go through.

Elliott, which could still hold a stake in Celesio even if the deal succeeds, could then as a minority shareholder press MckKesson for an even higher price.

McKesson said it would pay Haniel 23.50 euros a share for its 50.01 percent stake.

Elliott spent roughly 800 million euros ($1.1 billion) on close to a quarter of Celesio’s shares after McKesson made its initial offer and then rejected it as too low.

Sources told Reuters on Wednesday that McKesson was looking at concessions to get the deal done.

The new offer would value Celesio including its debt at about 11 times expected earnings before interest, taxes, depreciation and amortisation (EBITDA) for 2013, broadly in line with the multiple its U.S. suitor is trading at.

That compares with a multiple of about 11 times EBITDA that U.S. drugstore chain Walgreens paid for a stake in Alliance Boots in 2012. (Reuters)