* McKesson takeover bid succeeds at second attempt
* Elliott vows to abstain from further disruption - source
* Shares reach 3-1/2 year high as buyers bank on premium
* Minority investors eye perks from domination agreement
(Recasts with source, analyst comments, updates shares)
By Arno Schuetze and Ludwig Burger
FRANKFURT, Jan 24 Hedge fund Elliott has called
an end to its fight with McKesson over the drugs
distributor's acquisition of German peer Celesio,
selling its shares and vowing not to disrupt the deal further, a
source familiar with the transaction said.
Elliott, led by U.S. investor Paul Singer, sold its stake to
Celesio's largest shareholder Haniel, which then
tendered a combined stake of more than 75 percent of Celesio
shares to McKesson, including those from bonds that convert into
McKesson is buying Celesio as part of its drive to become a
global leader in drugs distribution and boost its bargaining
power with pharmaceutical firms such as Novartis and
Teva. A previous bid foundered after failing to secure
the 75 percent shareholder support it had set as a condition.
Celesio's new owner said it would now enter into a so-called
domination and profit-and-loss transfer agreement with the
German business, which will allow it to take full control and
gain access to its cash flows.
As part of the procedure, McKesson will have to compensate
minority shareholders forced to relinquish their holdings by the
A source familiar with the matter said Elliott accepted the
transaction and would not join any move by minority investors to
seek a higher price for any remaining shares and bonds - a
strategy it employed during the takeover of German cable firm
Elliott declined to comment, while officials at McKesson
were not immediately available for comment.
Elliott, which 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,
had pressed McKesson to hike its offer.
McKesson gave way on Jan. 9 and bumped up its bid by 50
cents to 23.50 euros a share.
Sources familiar with the transaction said Elliott, which
bought the shares at an average price of 23 euros apiece, made
the bulk of its profit from its convertible bond holdings rather
than from selling its shares.
McKesson declined to comment on the price it paid for the
bonds held by Elliott. But it will have to disclose that at
later stage, the source familiar with the transaction said.
"Given the huge size of Elliott's bet it's hardly
conceivable that they did all this for (a return of) just 2
percent," a hedge fund manager holding a sizeable stake of
Celesio convertible bonds said, referring to the profit Elliott
would have made on the shares.
McKesson said it was launching a new offer with the same
23.50 euro price to the remaining Celesio shareholders without
setting a minimum acceptance threshold. The offer documents are
expected to be published over the next 10 days.
However, Celesio shares on Friday traded 7 percent above
McKesson's offer price, indicating that buyers are holding out
for a premium because the U.S. company is seeking 100 percent
"The current price level is appropriate, even though the
premium on the 23.50 may appear excessive," Equinet Bank analyst
Konrad Lieder said.
Lieder said the price was justified by the likely
compensation McKesson would have to pay remaining shareholders.
"If the share price stays where it is, it looks like 25
percent of the registered capital is playing the back-end," a
Celesio shareholder said, referring to the strategy of holding
out for higher compensation.
($1 = 0.7307 euros)
(Additional reporting by Alexander Hübner and Frank Siebelt;
Editing by Philipp Halstrick and Mark Potter)