By Ludwig Burger
Oct 24 McKesson agreed to buy German
peer Celesio on Thursday for $8.3 billion, including
debt, forging a global market leader in drugs distribution to
boost its purchasing power with pharma majors.
San Francisco-based McKesson, the largest U.S. drugs
wholesale group, struck a deal to purchase the 50.01 percent
stake in Celesio owned by the diversified holding company Franz
Haniel & Cie and is offering to buy up the remaining
shares for 23 euros ($31.7) apiece, it said on Thursday.
McKesson and its closest U.S. rivals, AmerisourceBergen
and Cardinal Health, have all been looking to
grow beyond their domestic market, where they command a combined
95 percent share.
U.S. President Barack Obama's healthcare reform is also
putting pressure on costs across the sector.
"Celesio has some very strong brands across Europe including
Lloyds pharmacy and this deal gives McKesson some muscle to flex
across Europe," B. Riley & Co analyst Gene Mannheimer said.
Mannheimer said though the price may look rich, there are
"very clear synergies and cost savings that McKesson can
In a high-volume industry, where operating profit margins of
2 percent and less are common, the slightest improvements in
procurement and costs make a difference.
McKesson expects the deal to result in annual savings of
between $275 million and $325 million by the fourth year.
Separately, McKesson also reported a quarterly profit that
topped analysts' estimates.
As part of the largest German healthcare deal since
drugmaker Bayer bought rival Schering in 2006,
McKesson will gain about 22 billion euros ($30.3 billion) in
annual revenues from Celesio, creating a more than $150 billion
global drugs wholesale and pharmacies group.
That would far eclipse another transatlantic tie-up in drugs
trading, the purchase of a 45 percent stake in European pharmacy
chain Alliance Boots by U.S. peer Walgreen Co last year.
They have close to $110 billion in annual revenues but are
looking to bulk up further as they secured the right to buy up
to 23 percent of AmerisourceBergen in March.
Seller Haniel, a 257-year-old family-owned conglomerate, has
been shedding assets to pay down its debt and offset a massive
writedown on its holding in German retailer Metro MEOG.DE last
year. This year, the more than 600-member Haniel family had to
forgo a dividend for the first time since the end of World War
Celesio, owner of Britain's Lloyds pharmacy chain, has been
a headache for Haniel.
It was embroiled in price war that has all but erased
profits from the crowded German drugs wholesale market.
Healthcare cuts across Europe, its main market, added to woes.
"After a particularly challenging 5-6 years, we congratulate
Haniel for realizing a good deal for both itself and minority
shareholders," Berenberg analyst Scott Brado wrote in a note to
Celesio Chief Executive Marion Helmes has conceded that an
alliance or tie-up with a U.S. partner could help win steeper
discounts, mainly for the generic drugs it buys but also for
non-prescription medication and skincare products.
McKesson will also make a public tender offer for the
outstanding convertible bonds of Celesio, offering 53,117.78
euros for each of Celesio's outstanding convertible bonds due in
2014 DEA1AN5K= and 120,798.32 euros apiece for those due in 2018
The 23 euro per share bid represents a premium of about 43
percent over the stock price since speculation began in June
that majority owner Haniel might sell its stake.
The total transaction, including the assumption of Celesio's
outstanding debt, values the target at about $8.3 billion (6.1
billion euros), McKesson added. Celesio said its management and
supervisory boards welcomed the offer.
Shares in Celesio traded 4.9 percent higher at 0812 GMT at
22.79. They had closed up 6.1 percent at 21.725 euros on
Wednesday, after Reuters cited people familiar with the talks as
saying a bid of near 23 euros per share was imminent. McKesson's
stock rose 0.7 percent to close at $143.05 on Wednesday.
McKesson plans to fund the deal from cash reserves and
bridge financing, while seeking to retain its credit rating, it
said. Standard & Poor's rates the group's long-term prospects
It expects the deal to add between $1.00 and $1.20 to its
adjusted earnings per share in the first 12 months following
completion, provided it gets 100 percent of Celesio. Its offer
is conditional upon it obtaining at least 75 percent.
McKesson said it expected its offers for Celesio's shares
and bonds to start during the quarter through December, and
conclude it by March 31, but not before Jan. 17.
The offer values Celesio including its debt at about 11
times expected earnings before interest, taxes, depreciation and
amortization (EBITDA) for this year, above the 9.8 multiple its
U.S. suitor is trading at.
That is in line with the multiple that Walgreen Co paid for
the stake in Alliance Boots last year.