McKesson clinches $8.3bn deal for rival Celesio


Financier Worldwide Magazine

December 2013 Issue

December 2013 Issue

California pharmaceutical wholesaler McKesson Corporation announced on 24 October that it had agreed to acquire German rival Celesio AG for $8.3bn inclusive of debt. 

According to the terms of the deal McKesson will purchase a 50.01 percent stake in Celesio from French holding company Franz Haniel & Cie. GmbH before launching a voluntary tender offer for the remaining publicly-traded shares and convertible bonds in the company. McKesson plans to fund the deal by utilising cash reserves and bridge financing. 

San Francisco-based McKesson, which distributes medical supplies to half of US hospitals, as well as providing doctors and health plans, expects the deal for Celesio to add between $1 and $1.20 to its adjusted earnings per share during the first 12 months following completion, based on the proviso that it acquires 100 percent of the European firm. The offer is conditional on McKesson acquiring at least 75 percent of Celesio. 

The price of $31.70 per share offered by McKesson represents a 39 percent premium over the three-month volume weighted average price prior to the market speculation that began on 8 October 2013. The offer is a 5.8 percent premium over Celesio’s closing share price on Wednesday 23 October. Under the terms of the deal the two companies will continue to maintain their own brands after the transaction has been completed. “The agreements announced today with McKesson represent an exciting new chapter for Celesio,” said Marion Helmes, chief financial officer of Celesio. “This transaction is about growth, it positions our operations for success and brings benefits for all Celesio stakeholders. This combination allows two market leaders with complementary geographic footprints to work together in an increasingly global market segment.” 

The deal for Celesio will provide McKesson, the largest drugs wholesaler in the US which employs more than 37,000 employees and generated reported revenue of $122.7bn in 2012, with much needed access to European markets. Indeed, many of the larger US based drug distributors and retailers are looking to Europe for potential growth. Celesio has around 2200 pharmacies and 132 wholesale branches across Europe. The company has around 38,000 employees operating in 14 countries and posted revenue of about $29.5bn in 2012. 

However, in spite of the many positives the deal would generate for McKesson it does come with a considerable caveat. Although the deal for Celesio is of similar value to other recent transactions within the sector, the price agreed by McKesson is estimated to be around 10 to 11 times 2014’s earnings before interest, tax, depreciation and amortisation (EBITDA).

Furthermore, in recent years Celesio has come under increasing pressure in its native European market. Since 2007 Celesio’s EBITDA has fallen by around a third. European austerity measures have also put enormous pressure on drug prices across the continent. Despite the potential pitfalls of such a deal, McKesson hopes to achieve annual synergies of between $275m and $325m by the fourth year. “The combination of McKesson and Celesio will create a leading global healthcare services platform that will advance our customers’ ability to deliver better, more efficient healthcare solutions,” said John Hammergren, chairman and chief executive of McKesson, in a joint statement announcing the deal. “The healthcare industry is evolving rapidly, marked by convergence between segments and increased globalisation. With today’s announcement, we will bring together the strengths and expertise of each company to address global healthcare challenges.” 

Mr Hammergren also noted that although the group remains “open to new partnerships and business models”, he did not see the company purchasing another US chain such as CVS Caremark Corp or Rite Aid Corp. Some investors had expected McKesson to make a move to take on the new alliance of Walgreen Co, Alliance Boots GmbH and AmerisourceBergen Corp formed earlier in 2013. “We do not anticipate merging with a larger retailer and don’t believe that would be in our best interest or the retailer’s best interest,” said Mr Hammergren.

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Richard Summerfield

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