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The Deal: McKesson Succeeds After New Run at Celesio

NEW YORK (TheStreet) San Francisco drug distributor McKesson (MCK) late Thursday, Jan. 23, revived a failed 6.4 billion ($8.8 billion) offer for Germany's Celesio, reeling in 76% from Franz Haniel & Cie Gmbh, a Duisburg, Germany-based family-run conglomerate.

McKesson said it bought the stake at its original offer price and also picked up convertible bonds from New York hedge fund Elliott Management at an unnamed price.

McKesson now has more than the 75% required by German law to treat Celesio as a subsidiary. The company said it now plans on launching an offer to take Stuttgart-based Celesio private.

McKesson's first run at Celesio failed earlier this month when the approach attracted just 72.33% of the target's share capital, shy of the self-imposed 75% threshold and despite sweetening the offer by 0.50 to 23.50 per share at the last minute.

At the time Haniel only owned slightly over 50% of Celesio and the deal hinged on Elliott's acceptance. However Elliott, which is led by Paul Singer, had said the approach undervalued Celesio. Singer's fund had made a case for breaking up the target, which acts as a European pharmaceutical wholesaler and also runs its own pharmacies.

Legally, suitors are prohibited from taking another shot at a company for a year but there are exceptions, a spokeswoman for Germany's Bafin securities regulator said.

"The bidder can make an application for a waiver and if the target approves it they can make a new offer," said Bafin's Dominika Kula. "The price they paid for the convertible bonds can be used as a component for calculating the new minimum offer price but it doesn't necessarily have to be."

McKesson needs international heft after drugstore giant Walgreen (WAG) scooped up 45% of its U.K. counterpart Alliance Boots GmbH for $6.7 billion in 2012. Boots and Walgreen then strengthened their cooperation with pharmaceutical distributor AmerisourceBergen  (ABC) in a March deal that gave them the right to buy up to 23% of the Dublin, Ohio-based distributor.

Then, Dublin, Ohio-based Cardinal Health in December agreed to form a 50/50 generic drug sourcing joint venture with CVS Caremark (CVS) to directly battle Walgreen/Boots and become the biggest wholesaler in the U.S. CVS and Cardinal had been seen as a Celesio suitor.

"The next offer probably won't come in much above that 23.50," wrote NordLB analyst Thorsten Straus in a note. He has a sell rating on the stock.

Celesio shares jumped 5.2%, or 1.25, to trade at 25.26 in Friday morning Frankfurt trading.

Elliott was advised by JPMorgan Chase.

McKesson took legal advice from Linklaters and Wolf Theiss.

Hengeler Mueller's Maximilian Schiessl, Thomas Meurer and colleagues handled legal details for Haniel while Freshfields Bruckhaus Deringer provided counsel to Celesio.

--Written by Andrew Bulkeley In Berlin

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