* McKesson offer undervalues Celesio - Elliott
* Breakup of Celesio could be alternative - Elliott
By Arno Schuetze
FRANKFURT, Dec 10 Hedge fund Elliott
International pressed U.S. drugs wholesale group McKesson
for a mark-up on its $8.3 billion offer for German peer
Celesio, triggering a standoff with hundreds of
millions of dollars at stake.
"We do not intend to tender unless McKesson offers fair
compensation to all Celesio shareholders and bondholders,"
Elliott said in a statement on Tuesday.
Elliott, run by U.S. investor Paul E. Singer, has spent
roughly 800 million euros building a stake of more than 20
percent in Celesio over recent weeks and is now in a position
where it can block the takeover.
McKesson agreed to buy Celesio in October for $8.3 billion,
including debt, seeking to forge a global leader in drugs
distribution to boost its purchasing power with pharma majors.
The activist investor has been on the prowl in Germany of
late, building a large position in Kabel Deutschland,
aiming to sue Vodafone for a better price, according to
people familiar with the matter.
McKesson has said its 23 euro ($31.55) per share takeover
offer is conditional upon it obtaining at least 75 percent of
Celesio's shares, including those from the convertible bonds.
It struck a deal at the time to purchase the 50.01 percent
stake in Celesio owned by the diversified holding company Franz
Haniel & Cie but McKesson can also walk away from
that agreement if it does not clear the 75 percent hurdle.
Elliott has 25.16 percent of the voting rights in the
company. When shares from Celesio's two convertible bonds are
taken into account, the investor's voting stake is 22.7 percent.
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.
The surge in McKesson's value by $7.7 billion since early
October, when reports on a takeover offer appeared, was a clear
sign the Celesio acquisition offers high synergies for the U.S.
group and is a bad deal for minority shareholders, Elliott said.
"We believe Celesio has other paths to maximize shareholder
and bondholder value," Elliott said, adding that one alternative
would be to sell the wholesale business to a strategic bidder
and the pharmacy business to a separate buyer.
Elliott declined to say if it has been in contact with
groups such as Cardinal Health on Celesio's wholesale
ops or with private equity on its retail unit Lloyds Pharmacy.
Cardinal had initially also been in talks to take a stake in
Celesio, sources said in July.
Buyout group KKR counts its investment in pharmacy
chain Alliance Boots as one of its most successful.
Celesio declined to comment. San Francisco-based McKesson
was not immediately available outside normal office hours.