PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 18, 1997)
4,000,000 TRUST CONVERTIBLE PREFERRED SECURITIES
MCKESSON FINANCING TRUST
5% TRUST CONVERTIBLE PREFERRED SECURITIES
(LIQUIDATION AMOUNT $50 PER CONVERTIBLE PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY,
MCKESSON CORPORATION
------------------------
This prospectus supplement supplements and amends the prospectus dated
June 18, 1997, relating to the 5% Trust Convertible Preferred Securities of
McKesson Corporation ("McKesson"). The Convertible Preferred Securities
represent preferred undivided beneficial interests in the assets of
McKesson Financing Trust, a statutory business trust formed under the laws
of the State of Delaware, and the shares of McKesson common stock, par
value $.01 per share, issuable upon conversion of the Convertible Preferred
Securities.
On October 17, 1998, McKesson and HBO & Company ("HBOC"), a leading
healthcare information company, signed a definitive merger agreement for
McKesson to acquire HBOC. Under the terms of the merger agreement,
stockholders of HBOC would receive 0.37 shares of McKesson common stock for
each share of HBOC common stock in a tax-free exchange. The merger of the
two companies, which is subject to regulatory approval, the approval of the
stockholders of McKesson and HBOC at meetings scheduled to occur on January
12, 1999, and other customary conditions, would be accounted for as a
pooling of interests and is anticipated to close in the first quarter of
1999. The new company would be named McKesson HBOC, and the corporate
headquarters of McKesson HBOC would be located in San Francisco,
California.
Upon completion of the merger, Charles W. McCall, currently president
and chief executive officer of HBOC, would become chairman of McKesson
HBOC's board of directors, and Mark A. Pulido, currently president and
chief executive officer of McKesson, would become president and chief
executive officer of McKesson HBOC. Also upon completion of the merger,
McKesson HBOC's board of directors would consist of ten members, which
would include five members from the current McKesson board and five members
from the current HBOC board.
HBOC provides integrated patient care, clinical, financial, managed
care and strategic management software solutions for the healthcare
industry. These open systems applications facilitate the integration of
clinical, financial and administrative data from a wide range of customer
systems and software. HBOC's broad product portfolio can be implemented in
a variety of combinations from stand-alone to enterprise wide, enabling
healthcare organizations to add incremental capabilities to their existing
information systems without making prior capital investments obsolete.
HBOC also provides a full complement of network communications
technologies, including wireless capabilities, as well as outsourcing
services that are offered under contract management agreements whereby its
staff manages and operates data centers, information systems, medical call
centers, organizations and business offices of healthcare institutions of
various sizes and structures. In addition, HBOC offers a wide range of
electronic commerce services, including electronic medical claims and
remittance advice services as well as statement processing.
HBOC markets its products and services to integrated health delivery
networks, hospitals, physicians' offices, home health providers,
pharmacies, reference laboratories, managed care providers and payors.
HBOC also sells its products and services internationally through
subsidiaries and/or distribution agreements in the United Kingdom, Canada,
Ireland, Saudi Arabia, Kuwait, Australia, Puerto Rico and New Zealand.
HBOC experiences substantial competition from many firms, including
other computer services firms, consulting firms, shared service vendors,
certain hospitals and hospital groups, and hardware vendors. Competition
varies in size from small to large companies, in geographical coverage, and
in scope and breadth of products and services offered.
Although some of HBOC's competitors are comparable in size to HBOC,
HBOC believes that few, if any, competitors offer a comparable range of
healthcare information systems and services that compare favorably with
respect to all of the competitive criteria, mainly price and service.
HBOC recently completed its acquisition of IMNET Systems, Inc., a
company which provides electronic information and document management
solutions for the healthcare industry. In addition, HBOC, HBO & Company of
Georgia and Access Health, Inc. ("Access") entered into an Agreement of
Merger dated as of September 28, 1998, as amended. Access provides care
management products and services to the healthcare industry. The merger is
subject to certain conditions, including the approval by Access
stockholders at a meeting schedule to occur on December 10, 1998. If the
merger is completed, HBOC will issue up to approximately 38,932,001 shares
of HBOC common stock to Access stockholders and optionholders.
For further information about HBOC, see their reports filed with the
Securities and Exchange Commission under the Securities Exchange Act of
1934.
RISK FACTORS
RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS
An element of McKesson's growth strategy is to pursue strategic
acquisitions that either expand or complement its business. McKesson
routinely reviews such potential acquisition opportunities. Acquisitions
involve a number of special risks. Such risks include:
* the diversion of management's attention to the assimilation of
the operations of businesses McKesson has acquired and away from
other business concerns;
* difficulties in the integration of operations and systems and the
realization of potential operating synergies;
* difficulties in the integration of any acquired companies
operating in a different sector of the healthcare industry;
* delays or difficulties in opening and operating larger
distribution centers in a larger and more complex distribution
network;
* the assimilation and retention of the personnel of the acquired
companies;
* challenges in retaining the customers of the combined businesses;
and
* potential adverse short-term effects on operating results and the
ratings assigned to McKesson's debt.
McKesson and HBOC have historically engaged in numerous acquisitions.
Integration of acquisitions involve a number of special risks, as discussed
above. In addition, McKesson may incur debt to finance future
acquisitions. Alternatively, McKesson may issue securities in connection
with future acquisitions which would dilute the ownership of then current
stockholders. To the extent McKesson and HBOC are unable to successfully
complete and integrate strategic acquisitions in a timely manner, their
growth strategies could be adversely affected.
McKesson has agreed to acquire HBOC subject to regulatory approval,
the approval of McKesson's stockholders and the stockholders of HBOC at
meetings scheduled to occur on January 12, 1999, and other customary
conditions. It is anticipated that the merger will close in the first
quarter of 1999. However, there can be no assurance that the merger will
be completed or that it will be completed as contemplated or what the
results of the merger will be. Also, HBOC has agreed to acquire Access
subject to approval by Access stockholders at a meeting scheduled to occur
on December 10, 1998, and other conditions. There can be no assurance that
this transaction will be completed, or, if completed, that the operations
of Access will be successfully integrated.
CHANGING UNITED STATES HEALTHCARE ENVIRONMENT
In recent years, the healthcare industry has changed significantly in
an effort to reduce costs. These changes include increased use of managed
care, cuts in Medicare, consolidation of pharmaceutical and
medical/surgical supply distributors and the development of large,
sophisticated purchasing groups. McKesson expects the healthcare industry
to continue to change significantly in the future. Some of these changes
may have a material adverse effect on McKesson's and HBOC's results of
operations, such as a reduction in governmental support of healthcare
services or adverse changes in legislation or regulations governing the
delivery or pricing of healthcare services or mandated benefits. Changes
in pharmaceutical manufacturers' pricing or distribution policies may also
have a material adverse effect on McKesson's results of operations.
FIXED EXCHANGE RATIO DESPITE CHANGE IN RELATIVE STOCK PRICES IN THE HBOC
MERGER
In connection with McKesson's merger with HBOC, stockholders of HBOC
will receive 0.37 shares of McKesson common stock for each share of HBOC
common stock regardless of any increase or decease in the price of the
common stock of either McKesson or HBOC. The price of McKesson common
stock at the time of the merger may be higher or lower than its price as of
today's date or at the date of the special meetings of stockholders of
McKesson and HBOC. The price of McKesson common stock could change due to
changes in the business, operations or prospects of McKesson or HBOC,
market assessments of the merger, regulatory considerations, general market
and economic conditions or other factors. As a result, there can be no
assurance that such fractional share of McKesson common stock will equal or
be less than the market value of a share of HBOC common stock.
COMPUTER TECHNOLOGIES
Software applications that use only two digits to identify a year in
the date field may fail or create errors in the year 2000. This potential
problem is known as the "Year 2000 Issue." McKesson relies heavily on
computer technologies to operate its business and, accordingly, in response
to the Year 2000 Issue, McKesson has undertaken an enterprise wide Year
2000 project which is expected to complete most of its mission critical
projects by December 31, 1998 and all phases of its identified Year 2000
projects by June 30, 1999. As McKesson's business relies in part on the
computer-based systems of its customers, suppliers and other third parties
and on technology or data purchased from third parties, McKesson is
reviewing the Year 2000 readiness of all of these third parties and is
developing contingency plans for Year 2000 problems. McKesson also plans
to conduct systems testing with third parties during calendar year 1999.
McKesson believes that the most reasonably likely worse case Year 2000
scenario would be a business disruption resulting from an extended and/or
extensive communications failure. McKesson believes that such a disruption
is likely to be localized and of short duration and would therefore not be
likely to have a material adverse effect on McKesson. However, given the
range of possible issues and large number of variables involved in Year
2000 preparations (including any acquisitions which McKesson may make),
McKesson cannot quantify the potential cost of problems should its
remediation efforts or the efforts of those which whom McKesson does
business not be successful. Such costs and any failure of such remediation
efforts could result in a loss of business, damage to McKesson's reputation
and legal liability. Consequently, such costs or failures could have a
material adverse effect on McKesson.
Similarly, HBOC has established an internal task force to address the
Year 2000 Issue. HBOC's internal assessment indicates that its products
are, as of September 30, 1998, without material deviation, Year 2000
compliant. However, since there is no uniform definition of "Year 2000
compliant," HBOC may experience an increase in warranty claims. Although
such claims are not expected to create a material impact on HBOC, there can
be no assurances in that regard. HBOC expects that its internal systems
will be substantially Year 2000 compliant on or before February 28, 1999
and continues to make inquiries regarding the Year 2000 readiness of its
third party vendors. However, due to uncertainties associated with the
Year 2000 preparation efforts of third parties, HBOC is unable to predict
whether a material adverse effect on its business, results of operations or
financial condition may occur as a result of disruptions associated with
the Year 2000 Issue.
CONSIDER CAREFULLY THE RISK FACTORS ABOVE AND BEGINNING ON PAGE 6 IN THIS
PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This prospectus supplement is dated December 1, 1998.
The table on pages 56 through 58 of the prospectus, which sets forth
information with respect to the Selling Holders (as defined in the
prospectus) and the respective amounts of Convertible Preferred Securities
beneficially owned by each Selling Holder that may be offered pursuant to
the prospectus (as supplemented and amended), is hereby amended by the
deletion of items 20 and 65 of that table and the substitution therefor of
items 20 and 65 below as follows:
<TABLE>
<CAPTION>
Convertible Preferred Convertible Preferred
Securities Owned Number of Securities Owned
Prior to Offering Convertible Preferred After Offering
"Selling Holder Number Percent Securities Offered Number Percent
- --------------- ------ ------- --------------------- ------ -------
<S> <C> <C> <C> <C> <C>
20. Goldman, Sachs & Co. 93,950 2.35% 93,950 0 0.00%
65. Salomon Smith Barney Inc. 33,400 0.835% 33,400 0 0.00%
</TABLE>
The Prospectus, together with this Prospectus Supplement, constitutes
the prospectus required to be delivered by Section 5(b) of the Securities
Act of 1933, as amended, with respect to offers and sales of the
Convertible Preferred Securities and McKesson Common Stock issuable upon
conversion of the Convertible Preferred Securities. All references in the
Prospectus to "this Prospectus" are hereby amended to read "this Prospectus
(as supplemented and amended)".
