McKesson HBOC Inc. ousted most of its top executives yesterday over accounting improprieties involving its newly acquired software unit, promising that new management would return the company to profitability.
Charles W. McCall, the former president of HBO & Co. who was appointed chairman after the McKesson-HBO merger in January, was fired by the board of directors. Also dismissed were virtually all of McCall's top lieutenants at the old HBO, which is now McKesson HBOC's information technology unit. The chief executive, Mark Pulido, and the chief financial officer, Richard Hawkins, resigned.
In April, only three months after the acquisition, McKesson disclosed that HBOC had prematurely booked more than $40 million of its software sales. The company restated earnings, reducing fiscal 1999 profit by 4.4 percent, and warned that earnings could fall more as it continues to review its books.
McKesson shares have been taking a beating since October 1998, when the company announced its $13.9 billion purchase of HBO & Co., then the largest U.S. health-care software company. Some investors questioned the logic of combining a drug wholesaler with a software company.
Yesterday's news sent McKesson's stock swooning as much as 7 percent yesterday, with the price closing at $33.68 3/4, down $2.37 1/2 from Friday. The downward trend has been ongoing since April, when McKesson stock dropped more than 45 percent.
Analysts said that given the financial turmoil at McKesson HBOC in recent months, yesterday's announcement wasn't entirely a surprise. Shareholders have been demanding for "heads to roll" and blame to be assessed, said Mike Krensavage, an analyst at Brown Brothers Harriman & Co.
McKesson's board was initially hesitant to go through with the merger, analysts said, but Pulido put his reputation on the line to overcome investor resistance to the deal, which was finalized in January.
McKesson spokesman Larry Kurtz said that an audit review so far found "significant improprieties," but he would not disclose details. The audit is scheduled to be finished by June 30.
McKesson named John Hammergren, the head of its supply-management business, and David Mahoney, the head of its pharmaceutical services unit, as co-chief executive officers. Hammergren and Mahoney were Pulido lieutenants who worked with him in engineering the purchase of HBO, which some market observers said would help maintain continuity in the company.
Almost all of the other new appointments also have come from the McKesson side of the company, which is free of the financial troubles HBO is currently experiencing.
For the most part, analysts said the move was a good first step, but the audit results, which are expected to reveal just how deep the company's problems are, will be a far more important milestone in assessing the firm's future.
"The account is not fully fleshed out yet. The management team still needs to prove itself. They have a lot on their plate," said Krensavage, who is advising his clients against buying additional McKesson stock.
Steven Valiquette, an analyst with SBC Warburg Dillon Read Inc., said the new top executives also will have to gain expertise they don't have on how to run the HBO operation if they plan to make up for their losses soon.
Another prevalent challenge that faces the new management team is the year 2000 computer problem. Since McKesson bought HBO, then the largest U.S. health-care software company, industry sales have slowed as hospitals and medical offices put off the purchase of new software to concentrate on solving the computer problem. Valiquette said this could only count against the company's efforts to make a turnaround.
The company also said yesterday that it probably will not file its annual 10-K information form with the Securities and Exchange Commission by June 30, which surprised some market observers.