The healthcare industry's largest drug and medical-supply company and its largest information services company broke the news last week that they had broken off merger talks-which had never been disclosed.
The three weeks of discussions began when McKesson Corp.'s chief executive officer, Mark Pulido, approached HBO & Co. CEO Charles McCall about combining the two publicly traded healthcare suppliers, said Monika Brown, a spokeswoman for HBO & Co.
Word of the talks leaked to Wall Street just as the two companies were putting the merger idea to rest, Brown said. The leak from Salomon Smith Barney, the investment banking firm advising on the potential deal, "was completely by accident, but it was a very big mistake," she said.
Instead of allowing the trial balloon to privately deflate, the companies had to address the rumors that started to circulate as early as June 13. That's when CIBC Oppenheimer healthcare analyst Benjamin Rooks started picking up the news. "And I said, `That doesn't make sense-that's apples and screwdrivers,' " he said.
"I find it kind of scary, and I'm not alone," Rooks said about the fit between two very different core businesses. "I'm wondering what they were thinking."
Atlanta-based HBO & Co. became the industry's first billion-dollar healthcare software company last year, but its $1.2 billion in 1997 revenues were dwarfed by McKesson's $20.9 billion in the fiscal year ended March 31.
Despite that contrast, the deal under discussion was a merger of equals, with no premium given to either side in a stock combination, Brown said. HBO & Co.'s market capitalization at $14 billion is almost twice the $8 billion of McKesson, Rooks said.
Market capitalization, the value placed on a company through public trading of common stock, is the current share price multiplied by the number of shares outstanding.
Initially the merger was weighed as an opportunity to share McKesson's vast information trove in such areas as pharmaceutical prescribing patterns and patients' prescription compliance, Brown said.
Eventually, HBO & Co. could have added to its lineup of services using information systems to "take waste out of the supply chain," she said.
But for undisclosed reasons, the pluses did not add up to a deal, she said.
McKesson is defending a Federal Trade Commission challenge to its proposed acquisition of AmeriSource, a Malvern, Pa.-based drug distributor, for about $3.3 billion. McKesson and its chief rival, Dublin, Ohio-based Cardinal Health, have been bulking up through acquisition strategies.
The FTC also is challenging Cardinal's acquisition of Bergen Brunswig Corp., based in Orange, Calif., for about $4.2 billion.