January 20, 2014 9:41 pm

Elliott increases stake in Celesio to 24%

Elliott Associates, the activist hedge fund, has increased its stake in Celesio to more than 24 per cent, days after an $8.6bn takeover of the German drugs wholesaler collapsed.

The move could herald an attempt to salvage a deal with McKesson, the US pharmaceutical distributor, whose planned acquisition failed to secure enough shareholder support to go ahead last week.

New York-based Elliott now owns shares equivalent to 24.08 per cent of voting rights in Celesio and a further 7.93 per cent through convertible bonds, according to a filing to the Frankfurt stock exchange on Monday.

This would make it easier for McKesson to reach the 75 per cent shareholder approval needed for a takeover if agreement was reached with Elliott and Haniel, the German family-owned investment company which controls 50 per cent of Celesio.

Haniel agreed to sell its stake to McKesson last October in a deal that would have created one of the world’s biggest pharmaceutical distribution groups.

The takeover was initially opposed by Elliott, which rapidly built a big position in Celesio while arguing McKesson’s €23 a share offer was too low.

The hedge fund, known for its aggressive approach to boardroom battles, eventually agreed to sell last week when McKesson raised its bid to €23.50 a share.

However, the combined stakes of Elliott and Haniel were not enough to clear the 75 per cent approval threshold set as a condition of the deal.

Stephan Gemkow, Haniel chief executive, appeared to hint that the deal could be revived when he said: “It is a pity that the takeover has failed for the time being.”

Analysts said it was possible McKesson would make another bid because of its desire to establish a European bridgehead as the industry consolidates.

Alliance Boots, the UK pharmacy chain, has forged alliances with Walgreens and AmerisourceBergen of the US over the past two years, putting pressure on Celesio and McKesson to find transatlantic partners.

“We believe the pressure for a deal is increasing with further tie-ups in global drug procurement, and Celesio and Phoenix [another German-based wholesaler] are the two remaining sizeable EU assets available,” said James Vane-Tempest, analyst at Jefferies.

On a fully diluted basis, Haniel and Elliott are believed to own about 41.8 per cent and 27.1 per cent of Celesio, respectively, according to analysts.

McKesson could buy out Haniel and Elliott once the pair reached a combined 75 per cent holding, triggering a mandatory bid for the remaining shares, the analysts added.

The Elliott stake disclosed on Monday was as of January 13, raising the possibility that the fund has bought further shares in the subsequent week.

Elliott and McKesson did not respond to requests for comment. Haniel declined to comment.

Additional reporting by Alice Ross in Frankfurt

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