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SAN FRANCISCO — McKesson Corp. (NYSE:MCK) today announced the completion of its acquisition of the health care distribution business of FoxMeyer Drug Co. McKesson received regulatory clearance and court approval enabling the transaction to close on November 8, just 30 business days from its October 3 bid to acquire the bankrupt company's assets.

Alan Seelenfreund, McKesson's chairman and chief executive officer, said, "This is an exciting opportunity for McKesson — it brings us a step closer to our goal of leadership in health care supply management. The transaction allows us to use our considerable financial strength and expertise with information technology, and to leverage our strategic initiatives over a broader customer base. From this position, McKesson will strengthen its ability to effectively market products on behalf of manufacturers through retail and institutional channels."

Through an amended sale agreement, McKesson paid approximately $23 million in cash to the debtor, paid off about $500 million in secured debt and assumed an additional $75 million in other liabilities. McKesson acquired assets consisting primarily of accounts receivable and inventories of approximately $650 million, customer contracts and fixed assets.

Mark A. Pulido, McKesson's president and chief operating officer, said, "This acquisition clearly furthers McKesson's business strategy, and provides distinctive capabilities to a larger customer base. McKesson is uniquely positioned to provide the level of service and product offerings necessary to succeed in today's competitive marketplace." To reinforce the company's commitment to customers, Pulido said, "McKesson's first priority is to our customers and, as a result, we delivered almost $70 million in inventory following the close of the transaction."

McKesson has formed an Integration Team charged with combining the two companies' operations. To expedite the integration, McKesson has appointed Ronald N. Bone, 51, Senior Vice President, a 25-year McKesson employee, to head a team composed of both McKesson and FoxMeyer senior managers. The team is developing specific plans to integrate the operations over a period of 2 to 2 1/2 years.

Pulido said that "since filing for bankruptcy, FoxMeyer service levels fell below 90%," effectively causing FoxMeyer's annualized sales rate to fluctuate between $2.5 and $3.5 billion. However, Pulido added, "with the inventory infusion this weekend, we expect to see an immediate increase in service levels and anticipate a return of many of FoxMeyer's customers." McKesson expects to eliminate approximately $80 million of duplicate fixed costs during the 2 1/2 year integration period. The transaction is expected to be accretive after sufficient operating efficiencies are achieved within 90 to 180 days.

McKesson indicated that it will use existing cash balances in excess of operating needs and will draw on its revolving credit agreements to finance the transaction. McKesson said its investment in the FoxMeyer business following the restoration of normal credit terms will total approximately $400 million. The company expects its debt-to-capital ratio to remain below 40% following the consolidation. The acquisition will not affect McKesson's financial ability to pursue additional acquisitions or share repurchases.

FoxMeyer employees become part of McKesson's workforce. McKesson affirmed that it will respect FoxMeyer's employment and benefits policies, including its stay pay and severance agreements. To service the strong customer base, McKesson has committed to retaining both organizations' sales forces. The organization will be known as McKesson; however, the company has made arrangements to work with the FoxMeyer parent company for an orderly transition and name change within the next 30 days.

"The sale to McKesson provides the best possible resolution for all of our constituencies," said Robert A. Peiser, vice chairman and chief executive officer of FoxMeyer Drug. "This transaction fulfills our obligation to the unsecured creditors by generating funds that maximize creditor recoveries. Further, based on McKesson's leadership in the industry, we know that our customers will now receive superior customer service and access to a broader line of value-added products and services."

The acquisition provides McKesson with an expanded customer base for its major strategic initiatives including: CareMax(SM), McKesson's network of independent pharmacies; OmniLink(SM), McKesson's new pharmacy computer application and McKesson Select Generics(SM). Since its launch earlier this year, OmniLink has been enthusiastically received by community pharmacists across the country. The system is currently installed in more than 1,400 community pharmacies, providing a patient-centered network with the means to be electronically connected, in real time, to managed care providers. McKesson will also immediately make available OmniLink and its newest service, OmniLink(SM) Financial Systems, to the new customer base previously served by FoxMeyer, enabling them to obtain automated reconciliation statements and pre-funded third-party receivables. Through the acquisition, McKesson's existing customers will also benefit from expanded services and offerings such as the franchise program for community pharmacists, Health Mart. Currently, Health Mart has approximately 800 franchisees.

The acquisition also strengthens McKesson's position in the institutional marketplace. McKesson Health System's offerings, including Automated Healthcare Inc.'s RxOBOT(TM), will immediately be made available to all customers. RxOBOT, its completely automated medication-retrieval and physical inventory management system, provides hospitals with an error-free means of more cost effectively managing their pharmacy operations.

McKesson Corp., with pre-acquisition annual revenues of $14 billion, is a leading provider of pharmaceuticals and health care products and services. Through McKesson's U.S. Health Care business, its Canadian subsidiary, Medis Health and Pharmaceutical Services, and its minority interest in Mexico's Nadro, S.A., McKesson is the largest distributor of pharmaceuticals and health care products in North America.

Except for the historical information contained herein, the matters discussed in this release are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These include the speed of integration of the acquired business as well as other risks detailed from time to time in the Company's SEC reports. The Company assumes no obligation to update the information in this release.

Note to Editors: McKesson news releases are available at no charge through McKesson's NewsOnDemand fax service. To immediately receive an index of available releases, call 800/344-6495 and press 2.

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