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CNBC's FABER REPORT: McKesson, HBO Say Committed To Deal
The following report was aired on CNBC mid-afternoon Monday by reporter David Faber, updating
a report from earlier in the day:
While the resignation of a key officer has hit shares of HBO & Co. hard and led to speculation its
deal to be acquired by McKesson is in jeopardy, both companies are telling investors they're
committed to the deal. In fact, in conversations with investors, HBOC's CEO is shedding some light
on the abrupt departure of his company's co-president Jay Gilbertson last Friday. Those investors are
telling me that, according to HBOC, Gilbertson was asked to leave immediately after he told
management he would be leaving after the merger with McKesson closed. According to this
scenario, Gilbertson planned on staying until the deal closes early next year and collecting as much as
$13 million from exercising options on the deal's close. HBOC, however, fearing he will go to a
competitor, decided he should leave immediately.
Analysts have seized on Gilbertson's departure as an ominous sign. HBO has been hit today by a
downgrade from Alex. Brown on the heels of another downgrade by BancBoston Robertson
Stephens on Friday. Both the analysts behind those moves were disturbed by Gilbertson's
resignation, only a couple of months before this deal is expected to close. The Alex. Brown analyst,
calling the departure perplexing, downgraded the stock, saying it is a cause for concern about
fundamentals at HBOC and could lead to further defections in upper management.
Since announcing last Friday that Gilbertson was leaving the company voluntarily, the spread on this
deal has widened considerably. The deal, announced Oct. 18, calls for .37 shares of McKesson to
be exchanged for each share of HBOC. As of last Thursday, HBOC's stock was trading only 4.5%
below the the value of the deal. On Friday, with news of Gilbertson's departure the spread widened
to 13% and today it's gone up big again to a full 20% below the value of the deal. While both Alex.
Brown and Robbie Stephens believe the resignation may be a sign of tougher times ahead for
HBOC's business, neither believes it is a sign the deal will not close.
A spokesman at McKesson tells me the deal is on track to close in the first quarter, pointing out a
preliminary proxy on the deal was filed on Friday with the SEC.
As for Gilbertson's departure, the McKesson spokesman added that he oversaw divisions with a
revenue stream that accounted for 20% of HBOC's total revenue. So given that, one might expect
that McKesson's stock price would have declined in tandem with HBOC's, meaning the spread
would not have opened up dramatically. |
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