Paul Singer / Getty
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In November, Jewish Business News reported that Paul Singer’s Elliott Management was trying to block the takeover of German pharmaceuticals distributor Celesio by American competitor the Mckesson Corporation, in a deal that is now concluding with a US$8.2 billion total enterprise value, including debt assumed.
In doing so Paul Singer was clearly looking for greenmail, and was trying to get a higher price for the over 25% economic interest, including convertible bonds, he had acquired in Celesio over the previous period.
McKesson had solidified the foundation for its bid by agreeing to buy the 50.01% absolute majority held by Franz Haniel & Cie, the holding company of the founding family, last October. It then immediately made a follow up offer for the rest of the company at the same price of Euros 23 per share (at the time about US$31 per share).
As recently as just before Christmas, Elliott Management had stated it would not participate in the offer unless the offer was increased and would seek to prevent Mckesson from attaining the important 75% ownership threshold that it had placed as a condition in its offer. Now two things have happened to make him change his mind.
First, Mckesson has upped its bid by just a small amount, to Euros 23.50 per shares, stating at the same time this was all that could be afforded – essentially following the Dell playbook of 2013. Second, in the mean time the Euro has strengthened slightly against the dollar to about 1.365 from its earlier rate of about 1.345. Therefore in US dollar terms the bid price is now worth as much as US$32 per share. So Singer is picking up a whole buck now, in total, apparently enough now to make the deal happen. Just $1 has pushed him off the fence into accepting the McKesson bid; fair enough.
Even so, this represents a major shift from Singer’s earlier position, when Elliott Management was broadcasting that the McKesson bid “substantially” undervalued Celesio. I guess you can’t win them all.
McKesson had said late last week that the increased bid was its “best and final” offer. The deadline to accept the tender offer is now midnight this Thursday, which has clearly tended to focus people’s minds as well.
Once completed, the combination of McKesson and Celesio will create one of the largest pharmaceutical wholesalers and services providers in the health care sector in the world, with annual revenue of more than $150 billion and over 80, 000 employees in twenty countries in the world.
Both companies are distributors of prescription and over-the-counter drugs to pharmacy chains, independent pharmacists and medical institutions.
The total bid price for 100% of the shares at the final offer price represents about US$5.46 billion (Euros 4.0 billion) for the 170 million shares outstanding at September 30th, 2013. With consolidated debt of about US$2.74 billion (Euros 2 billion) at September 30th, 2013 as well, the combined implied total enterprise value of the final bid price is now therefore about US$8.2 billion (Euros 6 billion).
Complicating the maths slightly however, at Celesio’s last fiscal year end, i.e. December 31st, 2012, some US$955 million (Euros 700 million) of their consolidated debt was in the form of convertible bonds. All of these are now in the money at the final bid price, half convertible at Euros 22.48 and half at Euros 22.49.
Some of these bonds were likely picked up by Paul Singer when he acquired his own position. But, as they are actually all in the money now one should assume that the total possible 31 million new shares issuable under their terms of conversion will indeed be added to the final price tag for the Mckesson bid. If so this could cost them as much as around another US$1 billion (Euros $728 million) to close the deal. At the same time, of course, to the extent this does indeed happen, then Celesio’s consolidated debt will be reduced by their face amount, and they can be refinanced again afterwards.