McKesson 2014 Annual Report Download - page 42

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
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Foreign Operations
Foreign operations accounted for 11.0%, 8.2% and 8.4% of 2014, 2013 and 2012 consolidated revenues. Foreign operations
are subject to certain risks, including currency fluctuations. We monitor our operations and adopt strategies responsive to changes
in the economic and political environment in each of the countries in which we operate. Additional information regarding our
foreign operations is also included in Financial Note 25, “Segments of Business,” to the consolidated financial statements appearing
in this Annual Report on Form 10-K.
Business Combinations
Fiscal 2014
On February 6, 2014, we completed the acquisition of 77.6% of the then outstanding common shares of Celesio and certain
convertible bonds of Celesio for cash consideration of $4.5 billion, net of cash acquired (the “Acquisition”). Upon the acquisition,
our ownership of Celesio’s fully diluted shares was 75.6% and, as required, we consolidated Celesio’s debt with a fair value of
$2.3 billion as a liability on our consolidated balance sheet. The Acquisition was funded by utilizing a senior bridge loan, our
existing accounts receivable facility and cash on hand. Celesio is an international wholesale and retail company and a provider
of logistics and services to the pharmaceutical and healthcare sectors. Celesio’s headquarters is in Stuttgart, Germany and it
operates in 14 countries around the world. The acquisition of Celesio expands our global geographic area; the combined company
will be one of the largest pharmaceutical wholesalers and providers of logistics and services in the healthcare sector worldwide.
Our acquisition of Celesio was consummated through a series of transactions:
• 129.3 million of common shares of Celesio were acquired from Franz Haniel & Cie. GmbH (“Haniel”) for cash
consideration of €23.50 per common share or $4,128 million.
• 4,840 of the 7,000 convertible bonds issued by Celesio in the nominal aggregate amount of €350 million due in October
2014 (the “2014 Bonds”), and 2,180 of the 3,500 convertible bonds issued by Celesio in the nominal amount of €350
million due in April 2018 (the “2018 Bonds”) were acquired from Elliot International, L.P., The Liverpool Limited
Partnership and Elliot Capital Advisers, L.P. (together, the “Elliot Group”) for cash consideration of $951 million. The
2,180 acquired 2018 Bonds were converted to 11.4 million common shares of Celesio.
• 303 of the 2014 Bonds and 216 of the 2018 Bonds were acquired in private transactions for cash consideration of $63
million. 139 of the acquired 2018 Bonds were converted to 0.7 million common shares of Celesio.
From February 7, 2014 through March 31, 2014, we converted our remaining 2014 Bonds and 2018 Bonds into 11.9 million
of Celesio common shares. Also during this time period, substantially all of the remaining 2014 Bonds and 2018 Bonds held by
third parties were converted to 9 million Celesio common shares valued at $313 million and approximately $30 million in cash.
At March 31, 2014, we owned approximately 75.4% of Celesio’s outstanding and fully diluted common shares.
In accordance with a business combination agreement that we entered into with Celesio in January 2014, on February 28,
2014 and April 7, 2014 we launched voluntary public tender offers for the common shares of Celesio that remain outstanding for
€23.50 per share. In April 2014, the last of these tender offers expired and we acquired 1 million of additional common shares.
We also intend to enter into a domination and profit and loss transfer agreement, with Celesio as the dominated party, pursuant to
Sections 291 et seq. of the German Stock Corporation Act (Aktiengesetz - AktG). Such a domination and profit and loss transfer
agreement does not require any further regulatory approval.
Fiscal 2013
In addition to our April 2012 acquisition of the remaining 50% ownership interest in our corporate headquarters building
located in San Francisco, California, on February 22, 2013, we acquired all of the outstanding shares of PSS World Medical for
$29.00 per share plus the assumption of PSS World Medical’s debt, or approximately $1.9 billion in aggregate, consisting of cash
consideration of $1.3 billion, net of cash acquired, and the assumption of long-term debt with a fair value of $0.6 billion. The
cash paid at acquisition was funded from cash on hand and the issuance of long-term debt. PSS World Medical markets and
distributes medical products and services throughout the United States. The acquisition of PSS World Medical expands our existing
Medical-Surgical business. Financial results for PSS World Medical since the acquisition date are included in the results of
operations within our Medical-Surgical distribution and services business, which is part of our Distribution Solutions segment
beginning in the fourth quarter of 2013.