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In one of the largest securities class action settlements ever, McKesson Corp. on Wednesday agreed to pay $960 million to end litigation in federal court. Institutional investors filed the federal suits in 1999 after McKesson merged with HBO & Co. Following the merger, McKesson revealed accounting irregularities that triggered a $9 billion drop in the value of the health care giant’s stock in a single day. “This is a tremendous achievement,” said David Stickney, a partner in the San Diego office of Bernstein Litowitz Berger & Grossmann, which represents the New York State Common Retirement Fund, the lead plaintiff in the case. Bernstein Litowitz is well known for representing plaintiffs in massive securities class action recoveries, including the $3.2 billion settlement paid in 1999 by Cendant Corp., apparently the largest ever. The firm also represented the New York State Common Retirement Fund, the nation’s second-largest public pension fund, in that matter. Stickney said he could not discuss the alleged losses to the retirement fund in connection with McKesson, or how much of the settlement would go toward attorneys fees. But, he said, the fees would be “modest by Ninth Circuit standards.” San Francisco-based McKesson said it hopes the settlement will help the company move on from a controversy that is now nearly 6 years old. “Today’s agreement represents a significant step toward fully resolving the uncertainty related to this unfortunate chapter in the company’s history and allows us to focus once again only on the future,” John Hammergren, McKesson’s chairman and chief executive officer, said in a statement. McKesson is represented by Skadden, Arps, Slate, Meagher & Flom. Skadden also represented Cendant in its 1999 settlement. U.S. District Judge Ronald Whyte still needs to approve the agreement. Negotiations were overseen by Magistrate Judge Edward Infante. The settlement does not mean McKesson is completely off the hook for what remains one of the largest stock market meltdowns ever. The company still faces plaintiff suits in San Francisco Superior Court and other venues, including cases filed outside California. McKesson said it had set aside $240 million to resolve the other litigation, but acknowledged that “the ultimate costs” could be higher or lower. Joseph Tabacco Jr. of Berman DeValerio Pease Tabacco Burt & Pucillo, which represents plaintiffs in the California state court case, called the $240 million “a nice start.” He welcomed Wednesday’s settlement because it means his case can proceed. The state plaintiffs had to wait to go to trial until the class action was resolved, he said. McKesson had been negotiating with the federal plaintiffs for about five years. Stickney said nothing specific happened recently to prompt the settlement, except attorneys turning over evidence in connection with the upcoming trial. “That tends to bring everybody’s attention into focus,” Stickney said. The settlement followed another battle in federal court this week over an internal report McKesson ordered after the allegations of corporate wrongdoing surfaced. Skadden conducted the internal investigation at McKesson’s request, and the report was turned over to federal prosecutors in a successful bid for leniency. Although the feds charged several executives with conspiracy and securities fraud, the company never faced criminal charges. Skadden and McKesson argue that the report remains protected by attorney-client privilege. One of the indicted executives, former Chief Financial Officer Richard Hawkins, was scheduled to go to trial in front of U.S. District Judge Martin Jenkins on Monday, but the proceedings have been delayed until next week. Hawkins is accused of conspiring to inflate McKesson sales for the first quarter after the firm acquired HBO & Co. McKesson asked Jenkins to close the courtroom if anyone discussed the investigation, but Jenkins ordered that the entire trial remain open after objections from media organizations and plaintiff attorneys. Although the state plaintiffs already have access to the report, Stickney and the other federal plaintiffs wanted it. “As it turned out, the report is not critical,” Stickney said with a laugh Wednesday. The settled case is In re McKesson HBOC Securities Litigation, 99-20743. San Francisco Superior Court Judge Donald Mitchell is presiding over the state actions, which are consolidated as State of Oregon v. McKesson HBOC, 307619.

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