McKesson says Celesio takeover offer has failed

Last night’s news by McKesson that their 3 month offer to purchase Celesio had failed to secure the 75% of the shares they deemed necessary to complete the purchase raises several issues for suppliers, retailers and wholesalers…

Apart from the disruption and uncertainty of the past three months and its impact on staff, possibly resulting in some of the good guys leaving, and key suppliers reverting to short term strategic mode, Celesio’s profile as a takeover prospect has invariable attracted the attention of other players such as McKesson’s closest U.S. rivals AmerisourceBergen and Cardinal Health, which between them account for 95% of the U.S. market, are, like McKesson, all looking to grow abroad to gain purchasing power with drug makers.
At a market capitalisation of €4.11bn, Celesio is within the reach of each of the companies.

Celesio Chief Executive Marion Helmes has said that an alliance or tie-up with a U.S. partner could help win steeper discounts, mainly for the generic drugs it buys but also for non-prescription medication and skin care products.

Celesio, owner of Britain's Lloyds pharmacy chain, is suffering from a price war that has all but erased its profits from the crowded German drugs wholesale market. Healthcare budget cuts across Europe, its main market, add to its woes.

In response, CEO Helmes is centralising procurement to cut costs, as well as widening and standardising the offering of its pharmacies across Europe under the Lloyds brand.

The mooted offer would value Celesio including its debt at close to 9.9 times expected earnings before interest, taxes, depreciation and amortisation (EBITDA) for this year, roughly in line with the 9.8 multiple its U.S. suitor is trading at. That compares with a multiple of about 11 times EBIDTA that U.S. drugstore chain Walgreens paid for a stake in Alliance Boots last year.

And speaking of which, Celesio wholesaling would add to the combined muscle of Walgreen and Alliance Boots, thereby frustrating the obvious appeal to A.S. Watson in completing a global structure that might help it keep pace with Walgreen Boots globally…

Meanwhile, back to the short term initiatives for NAMs…

Superdrug/A.S. Watson to benefit from ParknShop sell-off in Hong Kong?

Hutchison Whampoa could get $4bn from the sale as Octogenarian Li Ka-shing, ranked by Forbes as Asia's richest man in 2012, plans to sell the business to focus on Hutchison's health and beauty retail operations, which have a bigger global footprint and offer higher margins compared with the supermarket business…

Your colleagues in China may be a little more interested in the Asian deal which would give a 30% market share of the Hong Kong market, attracting the attention of Japan's Aeon, China Resources Enterprise, Sun Art Retail, and Australian retailers Wesfarmers and Woolworths, among the eight parties invited to the process and weighing bids, with Walmart a possible late arrival. 

Walmart opened its first China store in 1996 and now operates over 380 stores spread across various formats, including Supercenters, Sam's Clubs and Neighborhood Markets.

KKR and TPG Capital have also been invited to bid and other buyout firms including Blackstone Group LP have held talks with banks about financing a possible bid.

In other words, by the bid deadline of the 16th August, that line up of talent will guarantee Li at least $4bn to enhance his global H&B offering… 

The real issue for global H&B suppliers is whether Li will now use the money in a final bid to catch up with Alliance Boots global ambitions via a bid for Celesio, a snip at €2.8bn....

This would provide A.S. Watson with a global wholesale arm, and in one move make it more of a match with Alliance Boots, as they each explore the world in search of H&B acquisitions....
Worth a thought?