Thursday, December 04, 2014

McKesson Officially Dominates Celesio

On Tuesday, McKesson announced that it had achieved operational control over Celesio, the global retail and wholesale company operating in 13 European countries and Brazil. Read the press release.

Technically, the Stuttgart Higher Regional Court approved the " domination and profit and loss transfer agreement" between Celesio AG and McKesson’s German subsidiary. Domination! Hard to beat that evocative Teutonic M&A terminology.

The three largest, U.S.-based wholesalers are now all expanding significantly outside North America—a key trend in our 2014-15 Economic Report on Pharmaceutical Wholesalers and Specialty Distributors. The McKesson-Celesio deal exemplifies this new era of global drug distributors. Read on for details.

In October 2013, McKesson announced its acquisition of Franz Haniel’s majority stake in Celesio, which is headquartered in Stuttgart, Germany. McKesson simultaneously launched tender offers for the remaining publicly traded shares and outstanding convertible bonds of Celesio. McKesson completed the transaction by gaining sufficient approval from holders of Celesio’s outstanding shares and convertible bonds.

In May 2014, McKesson and Celesio executed a Domination and Profit and Loss Transfer Agreement, which permitted McKesson to appoint new management. McKesson owns approximately 76% of Celesio’s outstanding shares. With Tuesday’s announcement, McKesson now has full operational control over Celesio.

Celesio operates both wholesale and retail businesses in multiple countries:
  • Celesio’s pharmaceutical wholesale business, Pharmacy Solutions, supplies pharmaceuticals and other healthcare-related products in 13 countries. France, the UK, and Germany account for about 70% of wholesale revenues. (See table below.) In 2013, Celesio’s wholesale business accounted for 84% of its revenues, but only 60% of its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). The wholesale segment’s EBITDA margin was 1.7%.
  • Celesio’s pharmacy business, Consumers Solutions, operates 2,175 pharmacies in six European countries, and manages 4,300 pharmacies operating under brand partnership arrangements. Nearly two-thirds of its pharmacy revenues comes from the UK, where its Lloyds Pharmacy chain is the second-largest chain behind Boots. It also operates pharmacies in Norway, Italy, Sweden, Belgium, and Solvenia. In 2013, the pharmacy segment’s EBITDA was 6.1%.

[Click to Enlarge]

During the past five years, Celesio has been expanding rapidly into Brazil.
  • In 2009, Celesio acquired a majority ownership (50.1%) in Brazilian pharmaceutical wholesaler Panpharma. In 2012, Celesio acquired the remaining 49.9% of Panpharma.
  • In 2011, Celesio acquired a majority ownership (60%) of Brazilian specialty distributor OncoProd. In 2014, Celesio acquired the remaining 40% of OncoProd.
(BTW, AmerisourceBergen and CVS Health are also investing in Brazil.)

Before the McKesson acquisition, Celesio has been divesting non-core businesses in what it called a “radical strategic realignment.” These businesses included: Doc Morris (mail pharmacy), Ireland Wholesale (wholesaler), Movianto (third-party logistics), Rudolph Spiegel (pharmacy equipment), and Pharmexx (sales and marketing services).


Drug distribution operates very differently in other countries, creating opportunities for wholesalers like McKesson to bring U.S. best practices to other parts of the world. However, these markets will also create new global risks and challenge wholesalers’ management to think differently about their business.

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