McKesson Readies Bid for Germany’s Celesio; Prescription-drug distribution is converging globally. The $1 trillion-a-year global drug landscape is undergoing a major shift in where profits are made

McKesson Readies Bid for Germany’s Celesio

Deal Values Drug Distributor at as Much as $5.39 Billion

EYK HENNING and TIMOTHY W. MARTIN

Updated Oct. 23, 2013 11:18 a.m. ET

McKesson Corp. MCK +0.65% is expected to announce Thursday an offer for Celesio AGCLS1.XE +6.13% , valuing the German drug distributor at as much as €3.91 billion ($5.39 billion), according to people familiar with the matter. McKesson, the largest U.S. drug distributor by revenue, is expected to offer between €21 and €23 per Celesio share, these people said. Advanced talks between the two were first reported by The Wall Street Journal earlier this month.As part of the takeover, San Francisco-based McKesson has agreed in principle to buy the stake in Celesio that is currently held by its largest shareholder, the Haniel family, these people say.

A spokesperson for Celesio declined to comment. Spokespeople for the Haniel family and McKesson weren’t immediately available for comment.

According to the agreement, the family’s holding company, Franz Haniel & Cie GmbH, would tender its entire 50.01% stake as part of McKesson’s offer for all of Celesio’s shares, pending regulatory approval. McKesson will likely finance the deal with a mix of cash and debt, a person familiar with the matter said.

For McKesson, the planned acquisition of Celesio, one of Europe’s largest drug distributors, will help increase its purchasing power in negotiations with global drug makers, especially for generic medications. It also creates a global alliance better equipped to enter fast-growing markets like Brazil, Russia and China—where, unlike the mature markets of Western Europe and the U.S., revenue is projected to be robust, as more people gain access to prescription drugs.

Celesio, which has been seen as a target for a larger U.S.-based peer for the last couple of years, has been under pressure in its core German market for some time because of price competition and regulatory limits related to pricing and integrating wholesale and retail operations.

The $1 trillion-a-year global drug landscape is undergoing a major shift in where profits are made. In developed markets, like the U.S. or Western Europe, residents have long had access to health insurance and prescription drugs. There, many brand-name drugs are losing patent protection. Use of cheaper, generic drugs is becoming more widespread.

Prescription-drug distribution is converging globally. U.S. pharmacy chain Walgreen Co. last year purchased a 45% stake in U.K. pharmacy giant Alliance Boots for $6.7 billion, with an option to buy the rest later. Those two companies then created a partnership withAmerisourceBergen Corp. ABC +0.11% , one of the three big U.S. drug wholesalers, fully linking up the supply chains of Europe and the U.S.

A global drug-distribution partnership carries risks. It’s unclear how much savings a large enterprise, like a McKesson-Celesio alliance, could actually wring out from drug makers, since there are a relatively small number of pharmaceutical companies capable of delivering product across multiple continents. Most drug manufacturing is regionalized. Shipping drugs across the world would be complex.

To McKesson, a deal with Celesio could add “at least $1” to annual per-share earnings, said David Larsen, a health care analyst for Leerink Swanna Research, in a Monday note to investors. In addition to gaining more purchasing clout with generic-drug manufacturers, a McKesson-Celesio partnership would help it produce private-label generic drugs and would improve relationships with drug makers, Mr. Larsen said.