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McKesson Loses Bid to Sue Shareholders

Court says the firm can't target those who gained from alleged securities fraud involving the purchase of HBOC.

August 14, 2003|From Bloomberg News

McKesson Corp., whose former chairman was indicted on securities fraud charges, cannot sue shareholders who benefited from the company's 1999 acquisition of HBO & Co., a federal appeals court ruled Wednesday.

The U.S. 9th Circuit Court of Appeals in San Francisco said HBOC shareholders didn't control HBOC or cause the company to commit fraud. McKesson HBOC Inc., the merged company, lost $9 billion in market value in April 1999 on word that HBOC prematurely booked $40 million in sales.

McKesson, the third-largest U.S. drug wholesaler, sued HBOC shareholders, who exchanged their stock for McKesson shares in the merger, for "unjust enrichment," saying it wouldn't have paid as much for HBOC if it had known about the accounting problems.

McKesson paid $13.9 billion for the health-care software maker.

"We cannot permit McKesson to pierce the corporate veil and obtain a remedy against the shareholders," a three-judge panel said.

McKesson filed suit against the $100-billion New York State Common Retirement Fund Inc. and other shareholders who exchanged more than 20,000 of their HBOC shares for McKesson shares on or after the Jan. 12, 1999, acquisition.

In January, McKesson won the dismissal of some claims filed by the New York retirement fund and other shareholders who said its board members knew about the accounting irregularities before they were disclosed. Other portions of the lawsuit against McKesson and two former executives were allowed to go to trial.

"Today's opinion does not in any way change the status of that case," said Larry Kurtz, a spokesman for San Francisco-based McKesson. "We're reviewing the opinion and have not made a decision about what if any actions we will take in response."

A message left at the press office of New York Comptroller Alan Hevesi wasn't returned. Daniel Berger, an attorney who represented the retirement fund in the case, was traveling and couldn't be reached, his office said.

Charles W. McCall, McKesson's former chairman, and HBOC executives were indicted for allegedly taking part in a scheme to record revenue at the merged company from contracts that contained contingencies that made it improper to count the sales. McCall's attorney has said his client is innocent.

McKesson's shares fell 4 cents to $33.45 on the New York Stock Exchange.

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