Elliott Management Corp., the U.S. hedge fund run by Paul Singer, said it won’t sell its shares in German drug distributor Celesio AG (CLS1) to McKesson Corp. (MCK:US) because the 3.9 billion-euro ($5.36 billion) offer undervalues the company.
The offer doesn’t appropriately compensate Celesio holders for McKesson’s potential gain, and fails to take the recent increase in equity prices into account, Elliott said in an e-mailed statement today. Celesio has other ways to maximize shareholder and bondholder value, Elliott said, such as selling its wholesale and pharmacy businesses separately.
Elliott has more than doubled its stake in Celesio in about a month and holds more than 25 percent of the voting rights. McKesson’s offer is conditional upon support from stockholders representing 75 percent of Stuttgart, Germany-based Celesio’s shares. It’s the second time this year the New York-based fund has challenged a takeover of a German company. It’s still holding an 11 percent stake in Kabel Deutschland Holding AG (KD8) as Vodaphone Group Plc tries to complete its purchase.
“We do not foresee Elliott’s true desire or ability to be successful in creating value in this business outside of McKesson, and see a break-up scenario for Celesio as highly value destructive for shareholders including Elliott,” analysts at ISI Group wrote in a note to investors. “While we continue to harbor doubts over Elliott’s intention to truly block the deal, the risk profile has certainly risen.”
They estimate the probability of the Celesio deal collapsing at about 25 percent, up from 10 percent, and don’t predict an increased bid before the tender offer expires in January.
A spokesman for McKesson wasn’t immediately available for comment outside of business hours. Dietmar Bochert, a spokesman for Franz Haniel & Cie GmbH, the German company that agreed to sell its roughly 50 percent stake in Celesio to McKesson, said it won’t change its plans.
Celesio fell 1 percent to 22.87 euros at the close of trading in Frankfurt. McKesson, based in San Francisco, has offered 23 euros a share as part of a plan announced on Oct. 24 to buy Celesio to expand in the growing global generic-drug market. McKesson fell 1.9 percent to $159.94 in New York.
“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 said in the release. “We do not intend to tender unless McKesson offers fair compensation to all Celesio shareholders and bondholders.”
Elliott, which bought shares at a higher price than 23 euros apiece, wants to keep pressure on McKesson before the offer expires on Jan. 9, Commerzbank analyst Volker Braun said in a telephone interview. The Jan. 9 deadline may be extended by two weeks if McKesson comes up with a better offer, Braun said. Potential savings for the wholesale business and pharmacy business with bigger partners could result in a higher value for Celesio, Braun said.
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