Hedge fund Elliott Management has increased its voting stake in German drug distributor Celesio AG (ETR:CLS1) (FRA:CLS1) to 24.08%.

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Elliott Management disclosed its enhanced stake in Celesio AG (ETR:CLS1) (FRA:CLS1) in its regulatory filings to the Frankfurt Stock Exchange on Monday.

Celesio plunged after McKesson’s bid fails

As reported earlier, the shares of Celesio AG (ETR:CLS1) (FRA:CLS1) declined after McKesson Corporation (NYSE:MCK)’s bid to acquire the company failed to gain enough support from shareholders.  McKesson Corporation gained support from shareholders who collectively own 72.33% of the shares of Celesio AG, slightly short of the 75% threshold to complete the transaction.

Interestingly, Elliott Management Corporation accepted McKesson Corporation (NYSE:MCK)’s higher offer to acquire Celesio AG (ETR:CLS1) (FRA:CLS1). The largest U.S. pharmaceutical company increased its bid for the German pharmaceutical wholesaler to €23.50 per share, its best and final offer.

John Hammergren, chairman and chief executive officer of Celesio AG (ETR:CLS1) (FRA:CLS1) expressed his surprise that the bid did not win enough support from shareholders given the fact the activist hedge fund Elliott Management supported it.

The merger of McKesson Corporation (NYSE:MCK) and Celesio AG (ETR:CLS1) (FRA:CLS1) was expected to create the largest pharmaceutical wholesaler and provider of logistics and services for the health care sector worldwide.

Elliott Management has taken advantage?

It is felt consequent to the sharp fall in Celesio AG (ETR:CLS1) (FRA:CLS1) share prices, Elliott Management appears to have taken advantage of the drop.  Prior to accepting McKesson’s richer offer, Elliott indicated it was not concerned if the deal failed, saying that Celesio could sell its wholesale and pharmacy business separately.

Elliott Management was previously controlling shares in Celesio with less than 20% voting rights. It was rumored that Elliott Management was adding to its stake after the failure of an $8.4 billion Celesio bid from McKesson Corporation (NYSE:MCK).

McKesson had raised its offer for Celesio AG (ETR:CLS1) (FRA:CLS1) following pressure from Elliott, the German drug distributor’s second largest shareholder behind Franz Haniel.

Elliott Management Corp in its disclosure filing on Monday revealed that it also holds convertible bonds which give it access to an additional 7.93% voting stake. This would give the hedge fund a theoretical voting stake of 32.01%.

However, as the convertible bonds don’t come due until October 29 this year, and April 7, 2018, the hedge fund is not immediately obliged to make a mandatory offer to Celesio shareholders. Reuters report point out that under German takeover rules, any investor who accumulates a voting stake of above 30% must make a mandatory takeover offer to the remaining shareholders.