WSJ Hypes McKesson Buyout (Again)

Implications: The Wall Street Journal published another article speculating on the possibilities of a private equity buyout of McKesson (MCK).  I still view McKesson as the most logical LBO target among the Big 3 wholesalers, especially given its business mix, current operating platform, age (and stability) of its management team, and potential for a value-creating restructuring. However, the turmoil in the credit markets makes a near-term deal seem unlikely as the credit crunch grips private equity.

Analysis: I last speculated about the possibilities for buyout of McKesson in October in McKesson Buyout Rumors (Council Site) based in part on a Wall Street Journal (WSJ) article by Greg Zuckerman.

Apparently, Mr. Zuckerman likes to fan these flames periodically because the March 16 online WSJ featured his article called As the Market Falls, It's Time to Shop.  The article states (in part):“When the economy stabilizes, some analysts say McKesson could be an acquisition target.”

McKesson’s closing price was $52.05 yesterday, which is more than double the October 2004 low of about $24 per share but 10% below the closing price on the date that the October WSJ article ran.

So far in 2008, McKesson’s stock price has fared the worst among the big wholesalers – Cardinal Health (CAH) and AmerisourceBergen (ABC). See an interactive chart of Big 3 YTD stock price performance. 

However, this year’s comparatively weaker performance actually reflects larger relative gains following McKesson’s Halloween rally. See an interactive chart of Big 3 stock price performance since November 1, 2007. 

Luckily, Mr. Hammergren can rely on his book royalties to tide him over until the private equity firms can get back on their feet.