McKesson Corporation (ticker: MCK, exchange: New York Stock Exchange (.N))
News Release -
18-Oct-1998
McKesson and HBOC to Merge Creating McKesson HBOC, the World Leader in Healthcare Services
McKesson and HBOC to Merge Creating McKesson HBOC, the World Leader in Healthcare Services
BW0009 OCT 18,1998 14:59 PACIFIC 17:59 EASTERN
( BW)(MCKESSON/HBOC)(MCK)(HBOC) McKesson and HBOC to Merge Creating
McKesson HBOC, the World Leader in Healthcare Services
Business Editors/Health & Medical Writers
SAN FRANCISCO and ATLANTA--(BW HealthWire)--Oct. 18, 1998--
Merger Combines the No. 1 Healthcare Supply Management and the
No. 1 Healthcare Information Companies To Give Unparalleled
Offering Across Full Continuum of Care; Uniting Information and
Supply Management Leaders Will Improve Productivity and Clinical
Outcomes for Healthcare Delivery
McKesson Corporation (NYSE:MCK) and HBO & Company (Nasdaq:HBOC)
today announced that the two companies have signed a definitive merger
agreement for McKesson to acquire HBOC.
This merger will create the world's first comprehensive
healthcare supply management and information solutions company,
uniting the top-performing, rapidly growing leaders in their
respective industries: McKesson, the No. 1 healthcare supply
management company, and HBOC, the No. 1 healthcare information
company.
Terms of the merger call for each HBOC shareholder to receive
0.37 shares of McKesson common stock for each share of HBOC stock in a
tax-free exchange. The merger, which is subject to regulatory
approval, McKesson and HBOC shareholder approval and other customary
conditions, will be accounted for as a pooling of interests and is
anticipated to close in the first quarter of 1999.
Following the merger, the company will be named McKesson HBOC.
McKesson HBOC will be the world's leading healthcare services company,
with the greatest breadth of product offerings and deepest reach in
both the healthcare supply and healthcare information sectors.
The two companies have a combined customer base of approximately
5,000 hospitals, 25,000 retail pharmacies, 35,000 physician practices,
10,000 extended care sites, 600 payors, 450 pharmaceutical
manufacturers and 2,000 medical-surgical manufacturers. McKesson HBOC
will serve the full continuum of healthcare in the United States and
have operations in 10 countries abroad.
"The fragmentation of healthcare information and therapeutic
product supply among the many sites and organizations involved in
healthcare delivery is a major impediment to improving clinical
outcomes and achieving productivity gains," Charles W. McCall,
chairman, president and chief executive officer of HBOC, and Mark A.
Pulido, president and chief executive officer of McKesson, said
jointly.
"Our vision for McKesson HBOC is a comprehensive offering to
improve productivity and clinical outcomes for the U.S. healthcare
system. The complementary capabilities of McKesson and HBOC span the
entire information and supply cost structure across the full continuum
of healthcare, enabling McKesson HBOC to uniquely offer the
most-comprehensive array of products and technology.
"We will provide the tools and technologies to enable healthcare
providers to increase their efficiency, reducing their costs of doing
business, while at the same time improving the quality of care for
patients."
"Both companies are number one in their segments, and are
currently experiencing strong sales and earnings momentum," McCall and
Pulido continued.
"We both have long used information technology as a primary tool
to meet the needs of our customers. Our mutual focus on information,
data, logistics and automation avoids risks often associated with
healthcare services such as capital intensity, labor and
reimbursement. And both companies have outstanding records of
consistently exceeding expectations and building shareholder value."
"Customers, manufacturers, employees and shareholders of both
companies will benefit from the expanded product and service
offerings, broader reach and integration of information systems and
supply management from McKesson HBOC.
"Our capacity to integrate and analyze useful information
gathered from manufacturers to patients across the full continuum of
care has major benefits for drug research, clinical development,
product utilization, patient care and the overall productivity of the
healthcare system."
"The merger is expected to be accretive in the first year to both
companies' earnings per share after synergies," McCall and Pulido
added. "We've identified first full year pre-tax synergies in excess
of $75 million from a combination of cost savings and easy-to-achieve
cross-selling initiatives. In addition, synergies in excess of $150
million can be expected to be achieved by the end of year three.
"The combined company reaches every site in the continuum of care
with very little overlap, and thus will be able to quickly exploit
opportunities to cross-sell each other's products. HBOC's 350-person
hospital sales force significantly augments McKesson's 50-person
hospital automation sales force. McKesson has 550 professionals
calling on physicians, which will substantially broaden the
penetration for HBOC's physician information products currently being
sold by 50 people."
"According to the report of the U.S. Senate Labor and Human
Resources Committee, of the $1 trillion U.S. Health Committee Care
expenditures in 1996, $180 billion was spent on administrative costs
and $330 billion on avoidable or inappropriate care. McKesson HBOC
with its encompassing healthcare products and information flow will
use its combined resources, technologies and customer knowledge to
develop new offerings to address this opportunity.
There is also a substantial opportunity for business from large
pharmaceutical companies and HMOs as they seek to outsource greater
components of their operations while using data as a tool to preserve
market share and product margins. Capitalizing on these opportunities,
McKesson HBOC's earnings per share growth rates should be greater than
35%, delivering enhanced value to shareholders of both companies,"
McCall and Pulido concluded.
Based on published reports and Wall Street estimates for McKesson
and HBOC for the twelve months ended September 30, 1998, McKesson HBOC
had revenues of approximately $21.2 billion, earnings before interest
and taxes of $886 million (before synergies) and a net debt-to-capital
ratio of approximately 24%. McKesson HBOC's strong cash flow will
enable it to continue an aggressive acquisition program to capitalize
on additional supply management and technology opportunities.
On October 16, 1998, the two companies had a combined equity
market capitalization of almost $23 billion. Since January 1, 1996,
HBOC and McKesson have ranked among the leading companies in total
shareholder return.
McCall will become chairman of McKesson HBOC. Pulido will become
president and chief executive officer of the new company. The McKesson
HBOC Board of Directors will have 10 members, five from the current
board of McKesson and five from the current board of HBOC. An
Operating Committee will be established, consisting of McCall, Pulido
and:
-- Albert J. Bergonzi, group president, HCIS,
-- Jay P. Gilbertson, group president, HCIS,
-- John H. Hammergren, group president, Health Systems,
-- Richard H. Hawkins, vice president, chief financial officer,
-- David L. Mahoney, group president, Pharmaceutical Services and
International, and
-- Mark T. Majeske, group president, Customer Operations.
The two companies will retain the employee base that has played a
key role in their growth and the creation of shareholder value. The
combined company will have significant executive management and
employee ownership.
The corporate headquarters of the combined company will be in San
Francisco. Atlanta will be headquarters for the healthcare information
business. The combined company will have approximately 20,300
employees across the United States, Canada and Europe, approximately
2,500 of whom are located in San Francisco or Atlanta.
Profile of the combined company
HBOC McKesson McKesson HBOC
Pro Forma
Financials
($MM) (a)
Twelve months ended
September 30, 1998
Revenues (b) 1,460 19,700 21,160
EBIT 454 432 961 (c)
Net income to 284 207 538 (c)
common shares
Diluted shares (MM) 439.4 104.0 266.6
Earnings per share $ .65 $ 1.99 $ 2.02 (c)
September 30, 1998
Total Assets 1,535 7,000 8,535
Cash and equivalents 556 130 686
Debt 1 1,625 1,626
Stockholders' Equity 1,185 1,800 2,985
Employees 6,500 14,000 20,500
Total Salesforce 480 1,450 1,930
-- Hospital 350 50 400
Automation and
Information
-- Hospital Pharma -- 200 200
and Med-Surg
-- Payor 60 -- 60
-- Physicians 50 550 600
-- Extended Care 20 150 (d) 170
-- Retail -- 500 500
Countries 9 3 11
(a) From continuing operations before special charges and merger
expenses (McKesson data based on consensus First Call estimate of
$.50 earnings per share and company quarter estimates for balance
sheet items for 9/30/98)
(b) Revenues exclude McKesson sales to customers' warehouses
(c) Includes $75 million in first full-year pre-tax synergies
(d) Includes Red Line, which McKesson has agreed to acquire
HBOC delivers enterprise-wide patient care, clinical, financial
and strategic management software solutions as well as networking
technologies, electronic commerce, outsourcing and other services to
healthcare organizations throughout the world. More information about
HBOC can be obtained on the World Wide Web at: http://www.hboc.com.
McKesson Corporation, a Fortune 100 company, is the leading
healthcare supply management company in North America through its U.S.
Healthcare businesses; its Canadian subsidiary, Medis Health and
Pharmaceutical Services; and its interest in Mexico's Nadro. The
company also owns McKesson Water Products, one of the nation's largest
providers of bottled drinking water. More information about McKesson
can be obtained on the World Wide Web at: http://www.mckesson.com.
Except for the historical information contained herein, the
matters discussed in this press release may constitute forward-looking
statements that involve risks and uncertainties that could cause
actual results to differ materially from those projected. These
statements may be identified by their use of forward-looking
terminology such as "believes," "expects," "may," "should," "intends,"
"plans," "estimates," "anticipates" and similar words. Risks and
uncertainties include the speed of integration of HBOC and McKesson as
well as acquired businesses, impact of continued competitive
pressures, success of strategic initiatives, implementation of new
technologies, continued industry consolidation, changes in customer
mix, changes in pharmaceutical manufacturers' pricing and distribution
policy, the changing U.S. healthcare environment, regulatory changes
affecting capital procurement policies and other factors discussed
from time to time in reports filed by HBOC and McKesson with the
Securities and Exchange Commission. The two companies assume no
obligation to update information contained in this press release.
Note to Editors: See attached McKesson and HBOC Overviews for
further information about the two companies.
More information about McKesson can be obtained on the World Wide
Web at: http://www.mckesson.com.
--30--dl/sf* mr/azs/sf
CONTACT: McKesson
Media:
Larry Kurtz, 415/983-8418
Kim Sankaran, 415/983-8416
Investor Relations:
Janet Bley, 415/983-9357
or
HBOC
Monica Brown, 770/668-5926
Beth Brown, 770/393-6587
KEYWORD: CALIFORNIA GEORGIA
INDUSTRY KEYWORD: PHARMACEUTICAL MEDICINE MERGERS/ACQ
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McKesson Corporation
