FRANKFURT Hedge fund Elliott International has lifted its stake in German drugs distributor Celesio, bringing it close to a position where it could block the $8.3 billion takeover bid by McKesson.
Celesio said on Tuesday that Elliott gained control of 25.16 percent of the voting rights in the company.
However, when additional shares from Celesio's two convertible bonds are taken into account, Elliott's voting stake stands at 21.05 percent.
McKesson has said its 23 euro ($31.07) per share takeover offer is conditional upon it obtaining at least 75 percent of Celesio's shares, including those from the convertible bonds.
Elliott, run by U.S. investor Paul E. Singer, may already have the power to block the deal. A banker familiar with the situation said that usually about five percent of a company's shares are held in accounts, whose owners do not tender.
McKesson last month agreed to buy German peer Celesio, seeking to forge a global market leader in drugs distribution to boost its purchasing power with pharma majors.
It 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.
Some of the investors closely following the deal say they expect Elliott to press McKesson for a mark-up.
"Elliott has purchased more than half of its stake at or above 23 euros. They are not here for an extra euro, they will want 25 or 26 euros a share at least", one hedge fund manager said, speaking on condition of anonymity.
"It's a big game of chicken. Elliott holds the keys," another investor said.
Elliott declined to comment.
According to German financial markets rules, the hedge fund has to disclose its intentions to Celesio by Thursday at the latest. The drugs distributor then has three business days to publish Elliott's statement.
Elliott may run the risk of prompting McKesson to scrap the outright takeover offer if Elliott's demands are perceived as outrageous.
"(McKesson) could go for the nuclear option and let the offer fall through", the hedge fund manager said.
In that case, McKesson could settle for Haniel's 50 percent stake, which would trigger a mandatory offer to the remaining shareholders at the average trading price over the previous three months, which would far below 23 euros.
Celesio's shares closed 0.5 percent higher at to 23.47 euros, indicating that some investors were speculating on McKesson upping its bid.
Celesio declined to comment further on its statement.
Elliott is known for building up stakes in takeover targets with the aim of extracting a better price, such as with Kabel Deutschland in September.
($1 = 0.7404 euros)
(Reporting by Arno Schuetze, Ludwig Burger and Alexander Huebner; Editing by Louise Heavens and David Evans)