The Deal: McKesson Considers Celesio JV After Bid Failure

NEW YORK (TheStreet) McKesson (MCK) on Tuesday revealed it had only narrowly failed to consummate its 6.4 billion ($8.7 billion) takeover agreement with Celesio AG and was mulling other ways of linking up with the German drug distributor, which analysts predicted may soon attract a new suitor.

The San Francisco healthcare company said its 23.50 per share bid had hauled in 72.33% of Celesio's share capital, just shy of the 75% hurdle it set. A 75% shareholding in a German company allows the parent to effectively treat the business as a unit.

But the deal was quashed after New York hedge fund Elliott Management failed to throw its entire weight and roughly 23% stake behind the approach despite a last-minute, 0.50 per share sweetener. The financial investor, led by Paul Singer, had said it would tender only half its stake, which it acquired in shares and convertible bonds after McKesson had unveiled the takeover agreement in October.

"We have been talking to Celesio for some time about various alternatives," McKesson CEO John Hammergren said during a healthcare conference in San Francisco. "Clearly a joint venture would be an alternative."

Global drug distributors are scrambling to beef up after drugstore giant Walgreen Co. scooped up 45% of its U.K. counterpart Alliance Boots GmbH for $6.7 billion in 2012. The duo strengthened their cooperation with pharmaceutical distributor AmerisourceBergen Corp. in a March deal that gave them the right to buy up to 23% of the Dublin, Ohio-based distributor.

Analysts said Tuesday that the Celesio failure may prove to just be some turbulence in the ongoing consolidation.

"The unexpected turn is disappointing but an acquisition of Celesio isn't yet off the table. It's just a matter of time," wrote Berenberg Bank analyst Scott Bardo in a note. He has a hold rating on the stock and mentioned Cardinal Health (CAH) as a potential suitor.

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. CVS has also been seen as a Celesio suitor and, with the venture now the largest distributor in the U.S., the duo may turn their attention abroad.

Celesio is also working to adjust to the shifting industry conditions. It began to part with peripheral units in 2012, selling its Movianto medical product distribution business to Mechanicsville, Va.-based Owens & Minor for 130 million. The company also wanted to sell its Doc Morris NV online pharmacy and its Pharmexx GmbH division, which handles personnel, marketing and strategy for pharmaceutical companies.

Until its partial acceptance of the bid last week. Elliott had argued that Celesio should break itself up.

Celesio shares pared 5.3%, or 1.275, to trade at 22.89 on Tuesday afternoon in Frankfurt. News of the failed offer was released after trading closed Monday.

--Written by Andrew Bulkeley In Berlin

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