McKesson HBOC Accused of Accounting Improprieties
HBO (named for founders Huff, Barrington, and Owens) & Company was formed in November 1974. The company quickly made a name for itself by delivering cost-effective patient information and hospital data collection systems. Its premiere product, MEDPRO, was designed to be the most cost-effective system in the industry. MEDPRO helped hospital administrators track patient admissions, discharges, emergency room registrations, order communications and results reporting, scheduling, and data collection.
The company went public in June 1981 under the NASDAQ stock symbol HBOC. Its fast growth in sales and profits made it a favorite of investors throughout the 1990s, and its stock rose more than a hundredfold between October 1990 and October 1998. Much of its growth came through acquisitions of other companies.
On January 12, 1999, McKesson Corporation, one of the largest distributors of prescribed drugs in the United States, completed a merger with HBO & Company by exchanging shares of option common stock. At the time, the two companies had a combined market value of more than $23 billion.
Just three months after the merger, McKesson HBOC, Inc. announced that its auditors had discovered accounting irregularities at HBOC during a routine annual review. The problems were uncovered when McKesson's accounting firm, Deloitte & Touche, mailed a survey to several clients and asked them to report the actual amount of goods and services they had purchased from the company. Several of the amounts returned by clients did not match what HBOC had recorded. As a result, McKesson HBOC, Inc. had to restate earnings for the last four quarters. When the restatement of earnings was announced in April 1999, shares of the company plunged from $65 to $34 in a single day.
Some believed that certain HBOC managers, seeking to ensure that the company would meet or beat analysts' expectations for sales and profits, had used