FRANKFURT U.S. drugs wholesale group McKesson (MCK.N) is ready to offer concessions in talks with hedge fund Elliott to save its planned acquisition of German-based peer Celesio (CLSGn.DE), three people familiar with the deal said on Wednesday.
McKesson in October offered 23 euros per Celesio share in a bid backed by Celesio's majority investor Franz Haniel & Cie FHANI.UL, seeking to forge a global leader in drugs distribution to boost its bargaining power with pharmaceutical majors.
Elliott subsequently splashed out roughly 800 million euros ($1.09 billion) on a Celesio stake large enough to block the deal, and denounced the $8.3 billion bid as too low.
"McKesson is budging, they are working actively on a solution," one of the people said. However, no agreement has yet been reached in the negotiations between McKesson and Elliott, the sources said.
If McKesson decided to up its bid, it could by the end of Wednesday make a new tender offer valid for another two weeks.
Or, it could buy shares for a higher price on the open market by Thursday, obliging it to pay the same price for those shares tendered before the midnight Thursday deadline.
Celesio traded up 7.7 percent at 24.16 euros at 1502 GMT.
By Wednesday afternoon, shareholders had tendered only 2.54 percent of the share capital and the voting rights in Celesio on a fully diluted basis.
McKesson has made its bid contingent on getting at least 75 percent of Celesio's shares, including those from convertible bonds.
Debt-ridden Haniel has been urging McKesson to make the acquisition work and may even settle for a discount to any sweetened offer to remaining shareholders, two people familiar with the transaction said. Haniel declined to comment.
"A thought that has surfaced is that McKesson could pay Haniel a slightly lower price for its 50 percent stake and offer a premium to other shareholders," one of the sources said.
Haniel, a family-owned conglomerate which traces its roots back to the 18th century, has been shedding assets to pay down its net debt, which stood at 1.6 billion euros at end-September 2013, and to offset a massive writedown on its holding in German retailer Metro (MEOG.DE) in 2012.
Elliott has 25.16 percent of the voting rights in Celesio but when shares from Celesio's two convertible bonds are taken into account, the investor's voting stake is 22.7 percent, below the 25 percent it would technically need to block the deal.
However, some funds, which track share indexes, cannot tender their shares before completion of the deal and usually another small percentage of a company's shares are held in accounts, whose owners do not tender.
San Francisco-based McKesson was not immediately available for comment outside business hours. Celesio and Elliott declined to comment.
($1 = 0.7349 euros)