McKesson Corporation Fails to Acquire Celesio

McKesson Corporation

McKesson Corporation announced Monday that it failed in its attempt to acquire German competitor Celesio. This announcement essentially means that the two drug giants will remain competitors for now. The news comes on the heels of a sweetened offer by the suitor McKesson, up from 23.00 to 23.50 euros per share. The increase amounts to a nearly $100 million dollar bump, but not enough to woo the necessary number of Celesio shareholders needed to solidify the deal.

McKesson shares, presumably influenced by news of the failed takeover attempt, were down about 5% Monday to $167.

The US-based drug company expressed its disappointment at not being able to reach the 75% threshold it had set as a condition of the takeover. The three-fourths percentage was made a condition due to the regulation in Germany which mandates 75% ownership as the necessary level for controlling interest.

McKesson’s chairman and chief executive John Hammergren expressed his disappointment at the failed attempt, but focused on the company’s history and what he characterized as its strong current position. Hammergren highlighted his belief that his company is in a great position to take advantage of emerging opportunities and minimized the ramifications of the failed takeover bid. McKesson’s head man chose to focus on the positive but the markets reaction, which resulted in a nearly 5% drop in the company’s share price, signified shareholder desire to keep up with the sectors trend of increased globalization.

The failed attempt by McKesson has for the time being left it standing alone in an industry that is, like almost all others, consolidating quickly on an international level. The trend of globalization is one that has been highlighted, taught and studied for some time now. The recent market reaction to the news of McKesson’s failed takeover attempt shows that there are quite a few stakeholders, at least in the drug industry, that wish to be on the leading edge of international consolidation.

McKesson corporation did fail to acquire Celesio, but had the US-based drug giant been able to seal the deal with its German competitor, the union would have outdone the move by Walgreen Co. to acquire 45% of European pharmacy chain Alliance. The Walgreen Alliance combination amounts to around $110 billion in yearly income, but the newly minted pair is still looking to expand. It is precisely trends such as this that are putting the pressure on McKesson and others to keep up with global market consolidations.

It is unclear just how close to the 75% acquisition minimum McKesson came, however the two principal players holding significant stakes in the Celesio are Elliot Capital Advisors with a 25% stake, and Franz Haniel & Cie. GMBH with its 50.01% stake. Haniel had been satisfied with the original offer and was disappointed in the failure of the recent offer. Though no representatives from Elliot were initially available for comment, the firm did express its belief that German-based Celesio was worth more than the $8.4 billion offered by McKesson.

Marion Helmes, chief executive of Celesio, stated that the company would return to its pre-offer strategies. Prior to McKesson’s expressed interest, Celesio had already been centralizing its purchasing to take advantage of discounts. Purchasing power, along with stronger negotiating positions are just a couple of the benefits forfeited as a result of the failed takeover.

Mckesson Corporation did fail to acquire Celesio, but some in the market believe that the US-based drug giant should gather itself and continue to pursue its German competitor. Time will tell which direction the leaders of both ships decide to sail in.

By Daniel Worku

 4 Traders

San Jose Mercury

Reuters