XML 35 R8.htm IDEA: XBRL DOCUMENT v2.4.0.8
Business Combinations
 3 Months Ended
Jun. 30, 2014
Business Combinations [Abstract]  
Business Combinations
Business Combinations
On February 6, 2014, we completed the acquisition of 77.6% of the then outstanding common shares of Celesio AG (“Celesio”) and certain convertible bonds of Celesio for cash consideration of $4.5 billion, net of cash acquired (the “Acquisition”). Upon the acquisition, as required, we consolidated Celesio’s debt with a fair value of $2.3 billion as a liability on our consolidated balance sheet and our ownership of Celesio’s fully diluted common shares was 75.6%. The Acquisition was initially funded by utilizing a senior bridge loan, our existing accounts receivable sales 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 is one of the largest pharmaceutical wholesalers and providers of logistics and services in the healthcare sector worldwide.
From February 7 to March 31, 2014, substantially all of the convertible bonds issued by Celesio (held by both third parties and us) were converted to 20.9 million common shares of Celesio. During the first quarter of 2015, we completed tender offers and we acquired approximately 1 million common shares of Celesio at €23.50 per share for a total of $32 million in cash, and the remaining convertible bonds were fully converted into 42,238 common shares of Celesio. At June 30, 2014 and March 31, 2014, we owned approximately 75.9% and 75.4% of Celesio’s outstanding and fully diluted common shares.
On May 22, 2014, Celesio and McKesson, through its wholly-owned subsidiary Dragonfly GmbH & Co. KGaA, entered into a domination and profit and loss transfer agreement (the “Agreement”). Under the Agreement, Celesio will subordinate its management to McKesson and undertake to transfer all of its annual profits to McKesson, and McKesson will undertake to compensate any annual losses incurred by Celesio and to grant, subject to a potential court review, the noncontrolling shareholders of Celesio (i) an annual recurring compensation of €0.83 per Celesio share and (ii) a put right for their Celesio shares at €22.99 per Celesio share. On July 15, 2014, the Agreement was approved at the general shareholders’ meeting of Celesio. The Agreement becomes effective upon its registration in the commercial register of Celesio at the local court of Stuttgart, Germany. Celesio’s obligation to transfer its annual profits under the Agreement will apply for the first time for the entire profit generated in Celesio’s fiscal period beginning on January 1, 2015 or the subsequent fiscal year in which the Agreement becomes effective. McKesson’s obligation to compensate the annual losses of Celesio under the Agreement will apply for the first time for the full fiscal period of Celesio during which the Agreement becomes effective. We currently anticipate the Agreement to be effective by the end of the calendar year, at which time, we will obtain operational control of Celesio.
Financial results for Celesio are included within our International pharmaceutical distribution and services business, which is part of our Distribution Solutions segment, since the date of acquisition.

The following table summarizes the preliminary recording of the fair values of the assets acquired and liabilities assumed as of the acquisition date.
(In millions)
Amounts
Previously Recognized as of
Acquisition Date
(Provisional)(1)
 
Measurement Period Adjustments
 
Amounts Recognized as of Acquisition Date (Provisional as Adjusted)
Receivables
$
3,425

 
$
(3
)
 
$
3,422

Other current assets, net of cash and cash equivalents
acquired
2,413

 
(3
)
 
2,410

Goodwill
3,570

 
436

 
4,006

Intangible assets
3,018

 
(536
)
 
2,482

Other long-term assets
1,272

 
(44
)
 
1,228

Current liabilities
(4,096
)
 
(6
)
 
(4,102
)
Short-term borrowings and current portion of long-term debt
(1,990
)
 
—

 
(1,990
)
Long-term debt
(322
)
 
—

 
(322
)
Other long-term liabilities
(1,293
)
 
156

 
(1,137
)
Fair value of net assets, less cash and cash equivalents
5,997

 
—

 
5,997

Less: Noncontrolling Interests
(1,500
)
 
—

 
(1,500
)
Net assets acquired, less cash and cash equivalents
$
4,497

 
$
—

 
$
4,497

(1)
As previously reported in our Form 10-K for the year ended March 31, 2014.
During the first quarter of 2015, the fair value measurements of assets acquired and liabilities assumed of Celesio as of the acquisition date were refined. Among the adjustments recorded, the fair value of acquired intangible assets was decreased by $536 million. The fair value was primarily determined by applying the income approach using unobservable inputs for projected cash flows and a discount rate, which were refined during the current period, and are considered Level 3 inputs under the fair value measurements and disclosure guidance. These refinements did not have a significant impact on our condensed consolidated statements of operations, balance sheets or cash flows in any period and, therefore, we have not retrospectively adjusted our financial statements. These amounts are subject to change within the measurement period as our fair value assessments are finalized.
During the last two years, we also completed a number of smaller acquisitions within both of our operating segments. Financial results for our business acquisitions have been included in our consolidated financial statements since their respective acquisition dates. Purchase prices for our business acquisitions have been allocated based on estimated fair values at the date of acquisition.
Goodwill recognized for our business acquisitions is generally not expected to be deductible for tax purposes. However, if we acquire the assets of a company, the goodwill may be deductible for tax purposes.