Tuesday, March 18, 2008

WSJ Hypes McKesson Buyout (Again)

John Hammergren, Chairman of the Board, President, Chief Executive Officer of McKesson (MCK), just co-authored a new book called Skin in the Game: How Putting Yourself First Today Will Revolutionize Health Care Tomorrow.

I’ll be reviewing this book in an upcoming post. But in the meantime, I want to check in on the prospects for a buyout of McKesson in advance of Mr. Hammergren’s presumably higher visibility in 2008.

I last speculated about the possibilities for buyout of McKesson in October in Chatter about a McKesson Buyout based in part on a Wall Street Journal article by Greg Zuckerman.

Apparently, Mr. Zuckerman likes to fan these flames periodically because Sunday’s online WSJ featured his article called As the Market Falls, It's Time to Shop. The article states:

“Other stocks that investment pros are keeping their eyes on? One is McKesson (MCK), the largest U.S. drug distributor, which has fallen more than 20% since late November. McKesson's business isn't impacted as much as some others in an economic downturn, and its profit is expected to rise 16% in the next year. When the economy stabilizes, some analysts say McKesson could be an acquisition target.”

McKesson’s closing price was $52.05 yesterday, which is more than double the October 2004 low of about $24 per share but 10% below the closing price on the date that the October WSJ article ran.

So far in 2008, McKesson’s stock price has fared the worst among the big wholesalers – Cardinal Health (CAH) and AmerisourceBergen (ABC). See an interactive chart of Big 3 YTD stock price performance. However, this year’s comparatively weaker performance actually reflects larger relative gains following McKesson’s Halloween rally. See an interactive chart of Big 3 stock price performance since November 1, 2007.

I still view McKesson as the most logical LBO target among the Big 3 wholesalers, especially given its business mix, current operating platform, age (and stability) of its management team, and potential for a value-creating restructuring. However, the turmoil in the credit markets makes a near-term deal seem unlikely as the credit crunch grips private equity.

Luckily, Mr. Hammergren can rely on his book royalties to tide him over until the private equity firms can get back on their feet.

1 comment:

  1. An eagle-eyed reader just sent me a link to Jim Cramer's negative comments on drug wholesalers from his TV show last night:

    "Amerisourcebergen (ABC): “That is a wholesaler of pharma…I think drug stocks are vastly oversold…that is a good company…but the whole industry is doing so badly. Let’s keep an eye on those stocks. Don’t buy.”"

    Source: Seeking Alpha.

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