McKesson, Celesio deal brings the number of generic titans to three

If you don't succeed the first time, try, try again. That's exactly what McKesson did when it announced that it reached an agreement with Franz Haniel & Cie. GmbH to acquire its entire holding of Celesio shares. And in a separate and subsequent agreement, McKesson also picked up the Celesio convertible bonds from Elliott.

Nothing good is ever easy. "While the path to securing this acquisition was certainly not what we had originally expected, it would seem that the interested parties to this transaction continued to see the compelling strategic benefit of McKesson and Celesio uniting to form a global leader in health care services," John Hammergren, McKesson chairman, CEO and president, said of the deal. "I never lost sight of the value this transaction will bring to our customers, our supply chain partners, the employees of both organizations and our shareholders."

The deal catapults McKesson's generic sourcing ability to the levels recently achieved by the CVS Caremark and Cardinal Health joint venture, and before that the Walgreens/Alliance Boots/AmerisourceBergen strategic partnerships.

Buying big in generics continues to be a big deal as these three juggernauts now have similar purchasing prowess. The McKesson-Celesio deal is expected to generate a combined generic purchasing power of between $9.5 billion and $11.5 billion, according to an analysis by FBR Capital Markets. A similar analysis of the respective purchasing power of CVS Caremark and Cardinal Health means their deal will create a combined purchasing power of between $9.5 billion and $11.5 billion. According to FBR, the Walgreens-Amerisource-Bergen-ABC Consortium has about $12 billion in combined generic purchasing power. 

But buying big won't necessarily benefit everyone. According to a recent DSN analysis of the three deals (you can check it out in the February issue of DSN), margin compression might be one consequence of three generic sourcing powerhouses. "The better these wholesalers are able to buy, the more they will drive the average manufacturer price down. This makes it harder for independent pharmacy members to compete with the Big Three, and could have perverse market effects."