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SAN FRANCISCO — McKesson Corp. has agreed to acquire the German pharmaceutical distributor Celesio AG in a deal valued at about $8.3 billion (6.1 billion euros).
If completed, the transaction will create a company with annual revenues of $150 billion and operations in 20 countries.
Under the terms of the agreement McKesson will purchase the 50.01% stake in Celesio currently held by Franz Haniel & Cie for 23 euros (approximately $31) per share and will launch parallel voluntary public tender offers for Celesio’s remaining publicly traded shares and outstanding convertible bonds.
The acquisition has been approved by the boards of directors of McKesson, Haniel and Celesio.
“This transaction brings together the strengths and expertise of two leaders in global health care with complementary geographic footprints, shared values and a history as a trusted partner to customers dating back approximately 180 years,” McKesson chairman and chief executive officer John Hammergren said during the company’s second quarter conference call with analysts.
“In response to some of the larger forces for change in health care, the industry has evolved rapidly, marked by convergence between segments and increased globalization. The combination of McKesson and Celesio will be well positioned to meet the increasing global nature of the pharmaceutical supply chain and continue to enhance our customers’ ability to deliver better and more efficient health care services.”
Celesio’s operations extend across 14 countries and include retail and logistics services as well as pharmaceutical distribution. Celesio owns the United Kingdom’s second-largest drug store chain, Lloyds Pharmacy Ltd., which operates more than 1,650 pharmacies, mostly in communities and health centers.
Its pharmaceutical distribution business encompasses 132 wholesale facilities supplying 65,000 pharmacies and hospitals that together account for some 15 million patients daily.
“The agreements with McKesson represent an exciting new chapter for Celesio,” said Marion Helmes, speaker of the management board and Celesio’s chief financial officer.
“This transaction is about growth; it positions our operations for success and brings benefits for all Celesio stakeholders,” he says. “It allows two market leaders with complementary geographic footprints to work together in an increasingly global market segment.”
Both McKesson and Celesio expect to maintain their own brands and continue to support customers through existing channels. Celesio operations, however, will be part of McKesson’s Distribution Solutions segment, which currently generates about 98% of the company’s revenues and about 86% of operating profit.
“We look forward to supporting Celesio and their business leaders as they implement their currently planned strategy for growth, and ultimately aligning our organizations more closely in the areas where we can deliver further value for our customers and manufacturing partners,” said Paul Julian, McKesson’s executive vice president and group president with responsibility for Distribution Solutions.
At present, the two companies deliver to around 120,000 pharmacy and hospital locations daily in the United States, Canada, Europe and Brazil, including more than 11,000 pharmacies that are either owned or are part of a strategic banner or franchise network of community pharmacies.
In addition to the 23-euros-per-share offer, McKesson will offer around 53,117 euros per bond for Celesio’s convertible bonds due in 2014 (principal amount of 50,000 euros) and 120,798 euros per bond for the convertible bonds due in 2018 (principal amount of 100,000 euros). McKesson expects to commence the tender offers during its current third fiscal quarter, which ends December 31, and to complete them in the fourth quarter, but no earlier than January 17.
The share purchase and tender offers are subject to closing conditions that include regulatory approvals and the acquisition of at least 75% of Celesio’s fully diluted shares by McKesson.
Hammergren told analysts that McKesson expects to realize annual synergies ranging between $275 million and $325 million by the fourth year following completion of the steps required to achieve operational control of Celesio. The company expects the acquisition to be accretive to adjusted earnings per share by $1.00 to $1.20 in the first 12 months following the successful completion of the tender offers, assuming that McKesson obtains 100% ownership of Celesio.
McKesson plans to fund a portion of the acquisition with cash and will fund the balance through a bridge financing facility. Fitch Ratings responded by placing McKesson’s long-term ratings on Rating Watch Negative because it will significantly increase the company’s debt, which is already deemed high because of its acquisition earlier this year of PSS Medical world Inc.
In addition, Fitch views the European pharmaceuticals market as less stable and efficient and generally riskier than the U.S. market.
