McKesson Leaves the Court

On Dec. 16, 1938, when President F. Donald Coster looked in his bathroom mirror and shot himself through the head, it was widely supposed that the $87,000,000 drug firm of McKesson & Robbins would die with him in all the bathrooms of the U. S. But this week, after 26 months in the bankruptcy courts, McKesson was ready to go back to its owners, and it was anything but dead. On the basis of de-Costerized accounting, its 1940 sales and profits were the best in its 108-year history.

For this remarkable comeback, credit belongs chiefly to two men. One is deep-voiced, bushy-browed William Jed Wardall, former investment banker (Bonbright & Co.) who became trustee of the McKesson reorganization. The McKesson reorganization was the first big case under the new Chandler Act (Chapter X of the Bankruptcy Act), and was therefore watched closely by lawyers as a test of the new law, which is designed to hasten reorganizations under the eye of SEC. Last week, the McKesson reorganization looked like a distinct legal success. The amended trustee's plan was submitted to the court on Jan. 27, agreed to by creditors, bondholders and stockholders alike, passed by SEC as "fair, equitable and feasible" last week, and approved by Judge Alfred C. Coxe this week.

Another wreath belonged on the grave of F. Donald Coster. For although he milked McKesson of almost $3,000.000, Mr. Coster, a dynamic and farseeing businessman as well as a crook, had gathered for the purpose a herd of very sturdy cows. Less than 5% of McKesson business comes from its own branded drugs, vulnerable to the scandalous publicity. Most of the rest is a distributing business, which wholesales some 48,000 different items, from alarm clocks to Coca-Cola syrup, to some 30,000 independent drugstores throughout the U. S.

McKesson's far-flung subsidiaries were once independent local drug wholesalers. When Coster lured these wholesalers (over 50 of them) into his gigantic merger during 1928-37, he paid them handsomely in McKesson stock, but he made sure he got the best in each area. So firmly were these houses and their salesmen entrenched in the U. S. drug trade that the Coster suicide affected their sales hardly at all. Within nine months after the trustee took over, McKesson sales made a new high.

But Trustee Wardall had no sinecure. It was his job not only to run the shock-rocked company, and to plan a new capital structure, but also to recover any assets he could. Most of the directors from whom a lawsuit (for negligence) might shake important money, were the former owners of the local wholesale houses, who had become vital cogs in the management wheel. If, in bargaining with these directors for a settlement, he got too tough, they might well have got tough in return by suing to get their companies back or leaving McKesson and taking their local customers with them. But if he let the directors off too easily, Trustee Wardall could hardly have satisfied the other stockholders, not to mention the judge and SEC. He trod these eggs skillfully enough to get more than $600,000 (par value) in McKesson preference and common stock from the directors. He also shook $522,400 (most of it covered by Lloyd's) out of Price, Waterhouse (TIME, Dec. 2), the accountants whose eyes Coster had so shaggily bewooled for twelve years.

That done, Trustee Wardall could finalize his reorganization plan. Against total osterized assets of $86,556,000 (1937), the new company's assets are valued at $76,900,000, most of the difference representing Coster's fictitious "crude drug" inventories. After subtracting $15,725,000 of debentures and some $17,400,000 in creditors' claims, preference and common stockholders are left with around $43,800,000 equity. Last year's indicated net profit was $4,396,000.

The new company will issue $11,800,000 in new debentures, 59,000 shares of 5 1/2% preferred, and 1,685,901 shares of common. Allocation: --

> To creditors and debenture holders a package of cash (40%), new debentures (40%) and preferred stock (20%).

> To old preference stockholders, 2.3 shares of new common (worth about $26 a share) for each old share.

> To old common stockholders, 1/4 share of new common for each old share.

The plan looked good enough to do Trustee Wardall out of his $25,000-a-year job. It provides for a maximum of 18 directors, names ten of them. Probable new president and boss of McKesson & Robbins: First Vice President William J.

Murray Jr., longtime head of South Carolina's Murray Drug Co., now part of McKesson.

Last fall Benton & Bowles advertising agency lost its share of the $6,000,000-a-year account of Colgate-Palmolive-Peet Lo. (No. 2 U. S. soapmaker), with it a large part of its billing (TIME, Oct. 28) This week B. & B. snapped back into soaps, got a contract to handle the $1,250,000-a-year Ivory Snow account for Procter & Gamble Co. (No. 1 U. S. soapmaker)

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