HBO & Co., the largest seller of healthcare information systems, and pharmaceutical distributor McKesson Corp. in mid-July killed a merger that would have created a company with $25 billion in market value.
Atlanta-based HBO accused investment banker Salomon Smith Barney of leaking the discussions, causing a decline in the value of HBO's shares. On July 14, its shares dropped to $32.06 from $36.03 as word got out about the potential merger.
Salomon Smith Barney had no comment on the company's accusation.
The merger had been "terminated shortly before it was leaked," HBO spokeswoman Monika Brown says. She didn't say what issues caused the deal to fall through.
HBO and McKesson on July 15 announced the merger's collapse, sending HBO's stock value back up to $33.75 in heavy trading.
The deal with San Francisco-based McKesson was very different for HBO, which has voraciously acquired healthcare information systems companies over the past four years to become the industry leader, with $1.5 billion in projected revenues for 1998.
If the deal had gone through, HBO would have married McKesson's access to drug companies with HBO's provider-based pharmacy information systems, providing a more direct link from manufacturer to provider. Brown says HBO perhaps could have set up a contract research organization, which drug companies use to outsource clinical trials.
Days after the HBO-McKesson deal's failure, investors wondered why HBO, whose sales have a 30% margin, would be interested in McKesson, whose margins are only 2% to 3%, says Dave Francis, managing director at Volpe, Brown, Whelan & Co. in San Francisco.
Their conclusion, says Francis: HBO must see few big-growth deals out there, even though it claims only 8% to 10% of the healthcare information systems market. As of July 16, HBO had a $14.5 billion market value, followed by SMS of Malvern, Pa., at $2 billion.
With that on investors' minds, HBO's shares on July 16 went back down to $30.