Elliott makes 13 percent profit on Celesio deal - analyst

FRANKFURT Thu Jan 30, 2014 8:08am EST

FRANKFURT Jan 30 (Reuters) - Hedge fund Elliott has made a return of about 13 percent on the bonds and shares it bought in Celesio, the German drug distributor being taken over by U.S rival McKesson, according to estimates by an analyst at Market Securities.

After a fierce standoff, Elliott last week called an end to its fight with McKesson over Celesio.

Though McKesson hiked its offer price for Celesio shares by just 2.1 percent and Elliott bought most of its stake at or above the original offer price of 23 euros a share, the hedge fund made the bulk of its profit from selling the convertible bonds, a person familiar with the transaction said.

According to a regulatory filing, Elliott received 71,428 euros ($97,500) per 2014 convertible bond, and 162,473 euros per 2018 convertible bond.

"We estimate the see-through price is about 30 euros, so they made about 165 million euros altogether on their convertible holding," said Timothee de Mierry from brokerage Market Securities said on Thursday, referring to the equivalent price per share.

Elliott, led by U.S. investor Paul Singer, invested more than 1.3 billion euros ($1.8 billion) in Celesio shares and convertible bonds over the course of the drawn-out takeover process. Based on the analyst's assumption, the hedge fund made a total of roughly 13 percent on its investment.

That would be in line with the average annual return of 14 percent that Elliott has booked on its investments in the past.

Elliott declined to comment.

According to the filing, Elliott has vowed not to disrupt the deal any further and to refrain from buying any Celesio and McKesson securities or to oppose their boards for a period of five years.

While other minority shareholders in Celesio may seek a higher price for any remaining shares and bonds at a later stage, the agreement means Elliott will not do so.

Elliott has sued for higher compensation as a minority shareholder in takeovers in the past - a strategy dubbed "playing the back end." It is expected to do the same following Vodafone's completed acquisition of German cable firm Kabel Deutschland, in which Elliott had built a 10.9 percent stake.

($1 = 0.7329 euros) (Reporting by Arno Schuetze; Editing by Mark Potter)