Elliott Backing Not Enough To Save Pharma Merger

Jan 15 2014 | 11:32am ET

Elliott Management's attack on McKesson Corp.'s proposed acquisition of rival pharmaceutical distributor Celesio appears to have worked too well.

The New York-based hedge fund spent more than a month attacking the US$8.3 billion deal as one that "substantially" undervalued Celesio—before McKesson increased its offer by 2% on the tender offer's last day, coaxing Elliott into accepting. But Elliott may have been the only investor assuaged by the move.

Despite the backing of Franz Haniel & Cie, which owns 50.01% of Celesio, and of Elliott, which owns 22.7%, the deal failed to win the required 75% support from shareholders—even after McKesson gave investors an extra few days to respond.

McKesson said it may consider creating a joint-venture with Celesio following the failure. But Elliott is not likely to be too upset about the deal's failure, despite its last-minute support for the sweetened offer and the drop in Celesio's share price. The hedge fund expressed confidence last month that Celesio "has other paths to maximize shareholder and bondholder value," suggesting that the company's wholesale and pharmacy business be marketed to separate buyers.

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