McKesson Corp. (MCK), the largest U.S. pharmaceutical distributor, rose to its highest value ever after agreeing to buy Germany’s Celesio AG (CLS1) for about 3.9 billion euros ($5.4 billion) to boost its share of the growing global generic-drug market.
McKesson gained nearly 5 percent after saying it will acquire the 50.01 percent stake held by Franz Haniel & Cie GmbH, a family-owned investment company, for 23 euros a share, and begin a tender offer to buy the remaining publicly traded shares at the same price. Including assumed debt, the purchase is valued at about 6.1 billion euros, the companies said in a statement today.
The acquisition may enable McKesson to buy as much as $10 billion a year in generic drugs for distribution, compared with $6 billion to $7 billion on its own, said Ross Muken, an analyst at International Strategy and Investment Group. Celesio, based in Stuttgart, Germany, has 132 wholesale branches that supply 65,000 pharmacies and hospitals, mostly in 14 European countries.
“The benefits of the deal include increased supply chain efficiency and global sourcing,” David Larsen, an analyst at Leerink Swann & Co. in Boston, said in a note today. McKesson “will get better pricing” as well, Larsen said.
McKesson, which started delivering drugs by covered wagon more than 150 years ago, reported that fiscal second-quarter earnings excluding one-time items were $2.27 a share, beating the $2.04 average of 15 analyst estimates compiled by Bloomberg. The San Francisco-based company also raised its full-year profit forecast to $8.40 to $8.70 a share.
McKesson rose 4.9 percent to $150 at the close in New York, its highest value since the shares began trading in August 1994. The stock had gained 68 percent in the past 12 months.
Since Walgreen Co. (WAG)’s 2012 deal to buy 45 percent of Alliance Boots, the owner of the largest U.K. pharmacy chain, drug distributors have been examining their positions in Europe and looking at ways to cut costs.
Globalization is “a natural evolution,” Muken said, particularly with all major generic-drug makers operating on a global basis.
This is McKesson’s first deal in Europe where governments have more control over drug prices, something that may be a challenge to work with in certain countries, said Chief Executive Officer John Hammergren said.
“We aren’t going to do this with a myopic view that in some way we are going to change the way pharmaceuticals are purchased around the globe,” said Hammergren in a conference call with analysts.
Celesio climbed 5.4 percent to close at 22.90 euros in Frankfurt. The stock gained 6.1 percent yesterday after people familiar with the discussions said the companies were close to a deal. The shares rose 67 percent this year through yesterday amid speculation the company could be sold.
The purchase values Celesio, including net debt, at about 11 times this year’s estimated earnings before interest, tax, depreciation and amortization. Walgreen paid 11.7 times Ebitda for its initial stake in Alliance Boots, a company perceived as “gold standard in the industry,” said Oliver Reinberg, an analyst at Kepler Cheuvreux.
In contrast, Celesio struggled with cuts in U.K. government reimbursement, the weakness of the British pound and its failure to build Germany’s first pharmacy chain on the back of the company’s 2007 purchase of the DocMorris mail-order drugstore. The unit was sold last year.
“After a particularly challenging five to six years, we congratulate Haniel for realizing a good deal for both itself and minority shareholders,” Scott Bardo, an analyst at Berenberg Bank in London, wrote in a report.
The 23-euro purchase price is 39 percent above the average price in the three months before Oct. 8, when speculation mounted about a sale, the companies said.
The boards of McKesson and Haniel have approved the acquisition of Haniel’s stake, the companies said. Celesio’s management and supervisory boards welcome the takeover offer to minority shareholders, and the company’s executives plan to tender their shares, according to the statement.
The acquisition is contingent on McKesson acquiring at least 75 percent of Celesio’s shares. McKesson also will begin a tender offer to buy Celesio’s two convertible bonds, which mature in 2014 and 2018.
McKesson expects to complete the offers in the quarter ending March 31, 2014 and to finish the steps needed to take operational control of Celesio in fiscal 2015, which begins April 1.
McKesson was advised by Goldman Sachs Group Inc., Haniel worked with JPMorgan Chase & Co. and Celesio mandated Citigroup Inc.
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