McKesson buying Celesio for $5.4B as wholesalers seek pricing leverage

Drugmakers long ago went global, and now drug wholesalers see the need to follow the same strategy. Months after AmerisourceBergen hooked up with Walgreen's and Alliance Boots in Europe, McKesson has struck a $5.4 billion deal to buy struggling German wholesaler Celesio.

To get a strategic foothold in a part of the world where many drugmakers reside, McKesson will pay Celesio €23 per share. With assumed debt, the companies said the deal will ring up at $8.3 billion. McKesson already has an agreement to buy about 50% of the company's shares from a single shareholder and is making a tender offer for the rest. The companies said finalization is dependent on McKesson snagging at least 75% of Celesio's shares.

"Our customers--from community pharmacies to major hospital networks--will benefit from the increased scale, supply chain expertise and sourcing capabilities of the combined company," McKesson CEO John Hammergren said in announcing the deal.

McKesson is the largest drug wholesaler in the U.S., but it has a very limited presence in Europe right now. Celesio has operations in 16 European countries, as well as a foothold in Brazil, a rapidly growing emerging market. The expansion follows competitor AmerisourceBergen's move on the continent earlier this year. The deals are all about getting a better strategic position for negotiating prices with drugmakers as the industry continues to globalize. That was a big motivation for Walgreen's decision last year to pay $6.7 billion for a 45% stake in Alliance Boots, with an option to buy the rest of the wholesaler and retailer. The company said the merger would save it $1 billion by 2016. It then turned around and struck a deal to invest in AmerisourceBergen and give it some of its distribution business in the U.S. and Europe.

The difference in the two deals is that Celesio has been been struggling to make money as the U.K. and European governments steadily squeeze drugmakers on prices to reduce their healthcare spending. On the other hand, Alliance Boots, which has drugstores and a wholesale business, is considered the "gold standard in the industry," Oliver Reinberg, an analyst at Kepler Cheuvreux, told Bloomberg.

McKesson said combined, the companies will have more than $150 billion (€111 billion) in annual revenue, about 81,500 employees, and operations in more than 20 countries. They will deliver drugs daily in Europe, the U.S., Canada and Brazil.

- here's the announcement
- get more from Bloomberg

Related Articles:
McKesson may follow AmerisourceBergen into EU
AmerisourceBergen gets Walgreen, Boots biz
AmerisourceBergen seeing shifts in drug distribution business
Drug pricing figures into McKesson settlement, earnings

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