McKesson 2016 Annual Report Download - page 85

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
Stuttgart, Germany and it operates in 14 countries around the world. The acquisition of Celesio expanded our
global geographic area. Financial results for continuing operations of Celesio are included within our
International pharmaceutical distribution and services business, which is part of our Distribution Solutions
segment, since the date of Acquisition.
From February 7, 2014 through March 31, 2014, substantially all of the convertible bonds issued by Celesio
(held by both third parties and us) were converted into an additional 20.9 million common shares of Celesio and
approximately $30 million in cash. At March 31, 2014, we owned approximately 75.4% of Celesio’s outstanding
and fully diluted common shares.
Included in the purchase price allocation were acquired identifiable intangibles of $2.3 billion, the fair value
of which was primarily determined by applying the income approach using unobservable inputs for projected
cash flows and discount rates. These inputs are considered Level 3 under the fair value measurements and
disclosure guidance. The fair value of the debt acquired was determined by quoted market prices in a less active
market and other observable inputs from available market information, which are considered to be Level 2 inputs
under the fair value measurements and disclosure guidance. The fair value of the noncontrolling interests for the
Celesio common shares that were not acquired by McKesson was $1,505 million and was determined by a
quoted market price that is considered to be a Level 1 input under the fair value measurements and disclosure
guidance.
The excess of the purchase price and the noncontrolling interests over the fair value of the acquired net
assets of $4.2 billion has been allocated to goodwill, which primarily reflects the expected future benefits to be
realized upon integrating the business. Most of the goodwill is not expected to be deductible for tax purposes.
Refer to Financial Note 10, “Noncontrolling Interests and Redeemable Noncontrolling Interests” for
information on the domination and profit and loss transfer agreement entered into between McKesson and
Celesio during fiscal 2015.
Other Acquisitions
In July 2015, we entered into an agreement to purchase the pharmacy business of J Sainsbury Plc
(“Sainsbury”) based in the United Kingdom (“U.K.”). Under the terms of the agreement, on February 29, 2016,
we made an advance cash payment of $174 million representing the full purchase consideration, which is
included in “Other Noncurrent Assets” within our consolidated balance sheet at March 31, 2016. The advance
payment bears interest at an annual rate of 3.3%, compounded daily, from February 29, 2016 until the closing of
the transaction. The interest will be paid to us in full on the closing date. The U.K. business is currently being
reviewed by the U.K. Competition and Markets Authority (the “U.K. CMA”). We anticipate obtaining U.K.
CMA clearance during the first quarter of 2017. Once completed, this acquisition will further enhance our retail
pharmacy service capabilities in the U.K. Upon closing, the acquired Sainsbury business will be included in our
International pharmaceutical distribution and services business within our Distribution Solutions segment.
In September 2015, we entered into an agreement to purchase the pharmaceutical distribution business of
UDG Healthcare Plc (“UDG”) based in Ireland and the U.K. During the fourth quarter of 2016, we paid the net
purchase consideration of $412 million into an escrow account, which is included in “Other Noncurrent Assets”
within our consolidated balance sheet at March 31, 2016. The acquisition was completed on April 1, 2016. The
acquired UDG business primarily provides pharmaceutical and other healthcare products to retail and hospital
pharmacies. The acquisition of UDG will expand our offerings and strengthen our market position in Ireland and
the U.K. The U.K. business is currently being reviewed by the U.K. CMA and as a result, we have limited
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