Risk & Compliance

McKesson Settles Suits for $960 Million

The settlement is reportedly the third-largest for a class-action securities case, trailing only settlements by Cendant and WorldCom.
Stephen TaubJanuary 14, 2005

McKesson Corp. announced that it agreed to pay $960 million to settle a class action lawsuit stemming from its 1999 restatement at its subsidiary HBO & Co. Inc.

The health services company said it will take a $1.2 billion pre-tax charge ($810 million after tax) to account for the settlement and to establish reserves for remaining HBOC suits.

The settlement, which covers 54 class-action lawsuits consolidated on behalf of McKesson’s
shareholders, represents the third-largest settlement of a class-action securities case — trailing only settlements by Cendant and WorldCom — according to the Associated Press, citing Leonard Barrack, a Philadelphia attorney representing McKesson shareholders.

The accounting improprieties were discovered in April 1999, three months after McKesson had acquired HBOC, an Atlanta-based health-care software business, for $12 billion in stock. The company, then called McKesson HBOC Inc., announced that it had improperly recognized revenues at the newly acquired business; the stock’s subsequent collapse shaved off about $9 billion from the company’s market capitalization.

Most of the company’s executive management was replaced, but McKesson was never the subject of any civil or criminal complaint from government authorities.

However, the Securities and Exchange Commission filed charges against former HBOC chief financial officer David Held and other individuals; four former HBOC executives have pleaded guilty to certain charges.

Charges are pending against other former executives of both companies, including former McKesson chief financial officer Richard Hawkins, who faces accusations of inflating revenue during the first quarter after the completion of the HBOC merger. His trial is expected to begin within the next week, according to the Associated Press.