Elliott: McKesson’s Bid ‘Substantially Undervalues’ Celesio


Paul Singer’s Elliott Management expressed discontent with the $8.3 billion proposal of McKesson Corporation (NYSE:MCK) to acquire Celesio AG (OTCMKTS:CAKFY) (ETR:CLS1) (FRA:CLS1). The hedge said the bid “significantly undervalues” the German pharmaceutical wholesaler.

McKesson Corporation (NYSE:MCK) is the largest pharmaceutical company in the United States, and acquired a controlling stake in the German pharmaceutical company from a major shareholder, Franz Haniel & Cie in October. After that, McKesson announced its intention to start a tender offer for the remaining shares of Celesio AG (ETR:CLS1) (FRA:CLS1) it does not yet own for $8.3 billion.

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Elliott believes Celesio not getting a fair shake

Elliott Management controls 25.16% stake in Celesio AG (OTCMKTS:CAKFY) (ETR:CLS1) (FRA:CLS1) including two convertible bonds. The hedge fund said it will not tender its shares or convertible bonds to McKesson Corporation (NYSE:MCK).

According to the hedge fund, “Simply put, Elliott believes that Celesio’s shareholders and bondholders are not getting a fair deal at the current price. Given the value McKesson stands to gain from the substantial realizable economies of scale, Elliott believes the price offered fails to appropriately compensate Celesio shareholders and bondholders for this upside potential.”

Elliott Management emphasized that McKesson Corporation (NYSE:MCK) is capable of paying a “fairer” price for the bondholders and shareholders of Celesio AG (ETR:CLS1) (FRA:CLS1) under a deal that is still highly accretive as early as the first year of the merger.

Merger will create world’s largest pharma wholesaler

The merger of McKesson Corporation (NYSE:MCK) and Celesio AG (OTCMKTS:CAKFY) (ETR:CLS1) (FRA:CLS1) will create the largest pharmaceutical wholesaler and provider of logistics and services in the care industry worldwide with more than $150 billion annual revenue. The combined company will have operations in 20 countries and approximately 81,500 employees globally.

The pharmaceutical companies are both offering branded, generic, and over-the-counter medicines to drugstore chains, independent pharmacists, and medical institutions such as hospitals. Celesio AG (OTCMKTS:CAKFY) (ETR:CLS1) (FRA:CLS1) is the operator of Lloyds, a pharmacy chain in Britain.

Elliott Management pointed out, “Even on a stand-alone basis, Celesio has been a company on the mend for some time now, and a turnaround was underway long before McKesson came in with its offer.”

The hedge fund also noted that the market value of McKesson Corporation (NYSE:MCK) increased by approximately $7.7 billion since October when the media reported about the potential merger. In addition, Elliott Management said the stock price of Celesio AG (OTCMKTS:CAKFY) (ETR:CLS1) (FRA:CLS1) increased significantly since then thereby reducing the premium offered in the proposal.