Talks over Celesio could drag on for weeks - sources


By Arno Schuetze and Frank Siebelt

FRANKFURT, Oct 9 (Reuters) - Talks between U.S. drugdistributor McKesson and the owner of Celesio over a possible bid for the German company could drag on forweeks, people familiar with the matter said on Wednesday.

Shares in Celesio, one of Europe's largest drug wholesalers,surged 20 percent on Tuesday on a report that McKesson couldoffer about 3.74 billion euros ($5.1 billion), or 22 euros pershare, for the German company.

Sources close to the matter said McKesson remained anxiousnot to overpay, while some Celesio investors stressed thedifficult European market is a blank spot on McKesson's map.

"Normally, U.S. companies tend to take over successfulEuropean rivals, rather than those in difficult situations. Youneed courage to invest in the uncertain Celesio story," saidUnion Investment fund manager Sebastien Buch, who holds Celesioshares.

"What's more, the strictly regulated European market wouldbe uncharted territory for McKesson," Buch said, adding that for22 euros apiece, he would tender his shares immediately.

Celesio declined comment.

The three largest drugs distributors in the United States - AmerisourceBergen, Cardinal Health and McKesson,which between them account for 95 percent of the U.S. market -are all looking to grow abroad to gain purchasing power withdrug makers.

Shares in Celesio, which is 50.01 percent owned by holdingcompany Franz Haniel & Cie, closed 2.6 percent lowerat 19.96 euros.

Celesio, owner of Britain's Lloyds Pharmacy, is sufferingfrom a price war in the German drugs wholesale market, where itcompetes with unlisted Alliance Boots, and fromhealthcare budget cuts across Europe, its main market.

In response, Chief Executive Marion Helmes is centralisingprocurement to cut costs, as well as widening and standardisingthe offering of its pharmacies across Europe under the Lloydsbrand.

"Making direct moves into Europe is not without risks. TheEuropean wholesale market is complex, low-growth and subject tocontinued competitive and regulatory pressures," said Berenberganalyst Scott Bardo in a note to investors.

Celesio's market value including debt is 9.1 times forwardEBITDA (earnings before interest, taxes, depreciation andamortisation), not far McKesson's 9.2 times multiple, accordingto StarMine.

That compares with a multiple of about 11 times which U.S.drugstore chain Walgreens paid for a stake in Alliance Bootslast year.

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