Using the proceeds from Adelphi, Musica moved to the tony suburb of Mount Vernon, New York in 1923, where he set up Girard & Co., another company that made Dandrofuge tonic. He also legally changed his name to Frank Donald Coster, or F. Donald Coster. He billed himself as a native of Washington, D.C. with an M.D. and Ph.D. from the University of Heidelberg. He claimed to have only practiced medicine for three years before going into business.

Like Adelphi, Girard's hair tonic business was very real, but most of its profits were generated from bootleggers who simply bought Coster's tonic in large quantities and distilled out the alcohol to make booze. The bootleggers paid far higher premiums than the drugstores that made up Girard's legitimate customer base. One of his biggest customers was Dutch Schultz.

As in the past, Coster brought his family in on this latest scam. He claimed to be running the company for the widow and sister of Horace Girard--roles played by his mother and sister Grace, respectively. His brother Arthur, under the alias George Vernard, set up W.W. Smith & Co. On paper, it was a sales agency that handled a large volume of Girard orders. In truth, it was nothing more than a "letter-writing plant" which generated fake purchase orders and mailed them to Girard. Another brother, Robert, under the alias Robert Dietrich, was Girard's head of shipping. He forged the necessary documents to make it look like the inventory had actually been shipped out. Another brother, George, under the alias George Dietrich, served as company treasurer and moved money between accounts to make it look like the "customers" had paid for the "orders."

To lend his scheme greater legitimacy, Coster asked Price Waterhouse to audit Girard & Co. In those days, auditors didn't check inventories, but only checked a company's books and supporting documents. Relying entirely on fraudulent documents provided by Girard, Price Waterhouse listed the company as having $1.1 million in sales, profits of $250,000 and assets of $295,000. When it examined W. W. Smith & Co., Girard's biggest customer, Price Waterhouse relied on the faked purchase orders as well as a forged report from Dun & Company (now part of Dun & Bradstreet) stating that W. W. Smith was worth $7 million.

The scheme succeeded with flying colors, and Coster soon moved the company to Fairfield, Connecticut. Also, he and his wife Carol (whom he had married after wrecking her previous marriage to a business associate) moved to an 18-room, seven-acre estate in Fairfield. While it was an open secret that Girard was really a bootlegging operation--in fact, it was the biggest bootleg distributor on the East Coast--Coster's ties to Connecticut politics and business, as well as his talent for bribery, kept any investigations from going anywhere.

Buying McKesson

Coster wanted to become a major player on Wall Street, and saw his chance when he found out that McKesson & Robbins, a well-respected drugmaker and distributor, was up for sale. He also wanted to avert any suspicion of his real activities. In 1926, he merged Girard & Co. with McKesson for $1 million, and Musica became the merged company's president.

The McKesson purchase gave Coster an even larger front for his bootlegging operation. However, he also pumped up McKesson's legitimate business, and led a drive to open up several foreign markets. During his first full year as company president, 1927, he incorporated a Canadian subsidiary to trade in crude drugs. Unlike the rest of the company, only Coster and George Dietrich--better known as George Musica--had access to the accounts of this new division. That year, the company turned a $600,000 profit.

Coster grew even richer, buying a 28-room mansion in Fairfield, a yacht, racing horses, and a stable of cars. His machine continued to roll through the Great Depression until by 1937, McKesson was the third-largest drug company in the world. However, he remained an intensely private man, in part out of fear of being unmasked. For instance, he turned down an offer to run for president in 1936 on the Republican ticket.

Coster's downfall began in 1937, when McKesson board ordered him to convert $2 million of his crude drugs into cash to build up profits and reduce outstanding debt. Coster responded with a demand that the firm obtain a $3 million loan "for improvements."

Julian Thompson, the company's treasurer, was puzzled by this demand. He figured a firm as successful as McKesson shouldn't need to obtain an outside loan. Several aspects of the company's arrangement with W. W. Smith and Co. also troubled him. On a hunch, he contacted Dun & Bradstreet, who informed him W. W. Smith's report was a forgery. He also discovered that the crude-drug division was more or less nonexistent, and that in 1929 Coster had looted the division of $640,000 to cover losses on the stock market. Altogether, Thompson discovered Coster had stolen $3 million from McKesson over the years.

When Thompson confronted Coster with his findings, Coster accused him of "trying to wreck this company." He then tried to place the company in equity receivership in order to throw Thompson off the scent long enough to cover up the fraud. However, Thompson countered by having the board file for bankruptcy protection under the Chandler Act. After an investigation by the Securities and Exchange Commission, Coster, Vernard, and George Dietrich were arrested and released on bail on December 13.

An investigator with the New York state attorney general's office thought he recognized Coster's face as that of former investigator William Johnson--the alias Musica had used after his release from The Tombs. A check revealed Coster's fingerprints to be an exact match to those of Musica. At a midnight press conference on December 15, officials dropped a bombshell--F. Donald Coster, the now-disgraced drug tycoon, was really two-time convicted fraudster Philip Musica.

Musica got word that he'd been unmasked, and that federal marshals were on their way to arrest him. Unwilling to face almost certain conviction and a long prison term, he locked himself in the bathroom and shot himself in the head on the morning of December 16. He was careful to stand in a way that when he fell into a large marble bathtub, none of his blood stained the carpet on the floor.

McKesson Returns to Private Ownership

The company reorganized in the early 1940s and returned to private ownership. Its operations were presumably closely held during this period. The company's calm and relatively quiet existence was intruded upon in 1967, however, when Foremost Dairies of California implemented a hostile takeover. Acrimony over the conduct of the buyout fostered an unhappy relationship between the managers of the new "partners" for several years after the merger. In fact, it was three years before McKesson offices were even moved to San Francisco, the headquarters of Foremost.

The new company formed by this merger, Foremost-McKesson, Inc., had no corporate strategy and appeared to be moving in several different directions at the same time. Rudolph Drews, head of the unified firm, was described by Forbes magazine as the "freewheeling" president who had acquired several diverse companies from "sporting goods to candy" after the merger with McKesson and who was better at making acquisitions than managing them. In 1974 Drews was forced from the corporation after a daylong board meeting; his management style was considered the cause for a "flattening" of earnings.

Drews's response, "I'll be back," after he was fired from Foremost-McKesson was no idle threat. Drews established his own corporate merger consulting business and found an opportunity in 1976 to orchestrate a takeover bid of his former company. Drews's middleman for the corporate raid was Victor Posner, a Miami multimillionaire who saw his own opportunity to buy out Foremost-McKesson. William Morison, who had succeeded Drews as president of Foremost-McKesson, worked hard to prevent Sharon Steel, Posner's Pennsylvania firm, from acquiring his company's stock. Although Posner was able to obtain 10 percent of Foremost-McKesson's equity, he soon found that the price of the stock could be measured in more than dollars and cents. 

Morison's defense strategy focused on a negative public relations campaign that targeted Posner and Sharon Steel. Careful, well-publicized research revealed that Sharon Steel Corporation had overstated its earnings for 1975 by 45 percent in order to support its takeover offer. According to Forbes, Posner was "scourged coast to coast" for his tactics as a "corporate marauder." Having repulsed Posner and Drews's takeover attempt, Foremost-McKesson stockholders approved a charter change that prohibited any "unsuitable" party from acquiring more than 10 percent of the company's common stock. An unsuitable party was defined as any business that might jeopardize Foremost's liquor or drug licenses.

Morison had worked to implement a reorganization in the midst of the 1976 battle to maintain autonomy. That year, Foremost-McKesson made two major acquisitions and sold or combined 11 of its less vital operations. Morison wanted to move the company away from its role of middleman as a wholesale distributor of pharmaceutical products, beverages, and liquor, and emphasize production of proprietary products. His objective was to streamline the company by selling its low-profit operations and investing $200 million into new businesses by 1990. Although the battle with Posner sidelined many of these goals, Foremost's acquisitions of C.F. Mueller Company, the country's largest pasta marker, and Gentry International, a processor of onion and garlic, were two significant acquisitions made in 1976 that met the objectives set by Morison.

Thomas P. Drohan, who was elected president upon Morison's 1978 retirement, continued his predecessor's strategy. Drohan's defense against corporate raids was to maintain a prohibitively high stock price. His management style focused on productivity and efficiency. Specifically, he automated inventory and stock procedures, allowing Foremost to reduce personnel costs by a third.

Drohan also redefined the company's "middleman" role in the distribution chain by establishing data processing procedures that would be valuable to both suppliers and customers, placing Foremost-McKesson in the position of acting as part of the marketing teams.

Over the course of the 1980s, independent druggists were faced with competition from powerful mass and discount drug chains. Foremost-McKesson's value-adding partnership offered these small business owners--many of whom could not afford the computerized inventory controls that were a key to the national chains' success--the benefits of automated systems without the expense. These practices catapulted the company to the vanguard of wholesale practices and contributed to average annual profit increases of 20 percent, ten times the rate recorded before 1976.

Neil Harlan succeeded to the chairmanship of Foremost-McKesson in 1979. A former army captain, Harvard business professor, and McKinsey & Company director, Harlan soon initiated a second restructuring, selling the pieces of the company that did not fit its distribution image. In 1983 alone, Harlan divested more than one-third of the conglomerate's holdings to focus on healthcare and retail products. Divisions sold included C.F. Mueller as well as Foremost Dairies and its food processing and residential construction subsidiaries.

In 1983 McKesson acquired Zee Medical, Inc. Formed in 1959, Zee Medical provided occupational safety and first-aid products. This McKesson subsidiary had grown rapidly after the federal government in 1971 increased workplace safety demands through OSHA. By around 2000 Zee Medical was a $100 million business that served more than 300,000 manufacturing plants, hotels, and other facilities.

Acquisitions made in the early part of the decade strengthened Foremost-McKesson's role as a major distributor of healthcare products. In 1982 the drug distribution business contributed $2.1 billion to the company's $4 billion in sales. Fueled by $90 million in acquisitions of distribution and distribution-related businesses, revenues increased steadily in the early 1980s. Harlan's aggressive consolidation helped make McKesson one of the leaders in wholesale distribution. A 1984 name change, to McKesson Corporation, reflected the declining influence of food operations.

Harlan, a popular leader, retired in 1986 and was succeeded by Thomas W. Field, Jr., formerly of American Stores Co., a national grocery chain. That same year, McKesson sold its poorly performing chemical distribution division, McKesson Chemical, to Univar Corp. for $76 million. Proceeds of the sale funded acquisitions of additional drug and healthcare product distributors, software firms, and medical equipment distributors. The company also raised funds for capital investments through the public offering of shares amounting to about 15 percent of subsidiary Armor All Products Corp. and a similar stake in prescription reimbursement division PCS Health Systems Inc. in 1986. Part of the proceeds went toward a $115 million expenditure on increased automation and efficient new distribution hubs.

McKesson had acquired Armor All, the company that launched the automotive protective market, in 1979. After suffering five years of limited profits, Armor All took off in the late 1980s. McKesson's bottled water subsidiary also paid off during this period: from 1980 to 1990, the American market for bottled water grew by 250 percent, and McKesson's Sparklett's brand enjoyed a number two ranking in that industry.

Although profits rose 33 percent and sales increased 46 percent over the course of CEO Field's term in office, he abruptly resigned in September 1989 amid difficulties related to McKesson's prescription reimbursement division, PCS Health Systems Inc. PCS managed pharmaceutical costs for the sponsors of corporate, government, and insurance healthcare plans by performing cost-benefit analyses of drugs and recommending the top candidates to its customers. Under pressure from insurance companies to cut costs, PCS had tried to reduce reimbursements to pharmacists and drugstore chains. When major customers--including Rite Aid Corp. and Wal-Mart Stores--balked at the cuts, McKesson scrambled to keep both its constituencies satisfied. Neil Harlan came out of retirement to serve as McKesson's interim CEO. Harlan was able to rejoin the ranks of the retired by the end of the year, when Alan Seelenfreund, a 14-year veteran of McKesson, advanced to chairman and CEO.

By 1990 McKesson was the industry leader in the drug wholesaling business. Its 27 percent market share was twice the percentage of its main competitor, Bergen Brunswig. McKesson in 1990 sold about 120,000 different products ranging from over-the-counter medicines to prescription drugs. Its customers included 2,500 hospitals, 14,000 independent drugstores, and 3,000 chain stores. Its annual sales of $7.6 billion and profits of $106 million came from the hard work of 15,800 employees.

Ironically, after causing such an uproar in the late 1980s, PCS evolved into a vital segment of McKesson's business in the early 1990s. During that time, PCS recorded sales and earnings increases of 50 percent annually, and although the company only contributed 2 percent of McKesson's annual sales, it brought in 20 percent of its profits. The parent company moved to transform PCS into what Business Week called "a full-fledged medical-services-management company" through the early 1994 acquisition of Integrated Medical Systems Inc., an electronic network designed to connect doctors, hospitals, medical laboratories, and pharmacies. Although these two acquisitions improved McKesson's operations, they also attracted the attention of an increasingly acquisitive pharmaceutical industry. In 1993, Merck & Co., then the world's largest ethical drug company, or producer of doctor-prescribed drugs, bought Medco Containment, a rival drug distributor, for $6.6 billion.

Merck's move prompted speculation that PCS and parent McKesson were the next logical takeover targets. McKesson's stock increased by more than 40 percent from July 1993 (when the Medco deal was announced) to February 1994. To a limited extent, that speculation became reality later that year, when McKesson agreed to sell PCS to Eli Lilly & Co. for $4 billion in cash.

McKesson used the sale as an opportunity to restructure its finances: The company gave shareholders $76 plus a new share in McKesson in exchange for each old McKesson share they held. The remaining $600 million in proceeds from the sale were reinvested in the company.

CEO Seelenfreund looked to McKesson's future in the company's annual report for 1993. He noted, "In the competitive environment created by efforts to bring rising healthcare costs under control, the winners will be those organizations that have both the financial strength and the technological skills needed to improve the quality of care while cutting their own costs and those of their customers. McKesson is one of the few companies that possess both these strengths."

McKesson's expansion in the 1990s was fueled by several acquisitions. On November 17, 1998, it announced the acquisition of Red Line HealthCare Corporation, a Novartis subsidiary whose headquarters remained in Golden Valley, Minnesota. A distributor of medical services and supplies for extended care facilities, Red Line (www.redline.com) reported sales of about $375 million for the fiscal year that ended on August 31, 1998.

In January 1999 McKesson through a subsidiary completed its merger with HBO & Company (NASDAQ: HBOC) to form McKesson HBOC, Inc. The merged business that began operations on January 13, 1999 was "the world's largest healthcare services company," according to a press release.

In 1999 McKesson HBOC acquired two other companies. First it acquired Kelly/Waldron & Company and Kelly Waldron/Technologies Solutions, which provided market research, database services, and automated systems to help strengthen the corporation's sales and marketing efforts. The two acquired businesses had revenue of about $25 million in 1998. Later in 1999 McKesson acquired the Minneapolis company of Abaton.com, Inc., a private firm that offered Internet-based prescribing, laboratory requests and results, and related services to doctors' offices.

Prospective Health, Inc. (PHI)'s acquisition by McKesson HBOC was announced in a press release dated January 31, 2000. Headquartered in Palos Heights, Illinois, PHI and its 50 employees developed software for the healthcare industry.

About a month later, on February 29, 2000, McKesson announced the sale of subsidiary McKesson Water Products Company to Groupe Danone for $1.1 billion in cash. That was the final step that began in the 1980s to end the company's diverse operations. "This sale completes the company's transition to a focused healthcare company, with market-leading positions in healthcare information technology and supply management," said John H. Hammergren and David L. Mahoney, company co-CEOs and co-residents, in a February 29, 2000 announcement.

At the end of fiscal 2000, which ended March 31, 2000, McKesson HBOC reported total revenues of $36.7 billion, a 22.3 percent increase over its $30.0 billion in total revenues for fiscal 1999. The corporation's fiscal year 2000 total revenues came from four sources: 1) pharmaceutical distribution and services, $24.1 billion, 2) medical-surgical distribution, $2.7 billion, 3) $8.7 billion in sales to customers' warehouses, and 4) information technology, $1.2 billion. Including special items, the company in fiscal 2000 earned a net income of $723.7 million, up from $84.9 million the year before.

The company on July 24, 2000 announced it had signed a three-year contract with Wal-Mart Stores to continue providing pharmaceuticals for the chain of 1,773 Wal-Mart stores, 780 Supercenters, 466 SAM'S Clubs, and five Wal-Mart warehouses. A Wal-Mart executive praised McKesson for its innovative service and technological prowess that led to the renewal of a business relationship that began in 1989.

In September 2000 McKesson HBOC Information Technology Business signed an agreement to acquire the MED-Solution system of Montgomery, Alabama's Health Care Systems, Inc. This was part of the company's efforts to improve the reliability and safety of drug dispensing in hospitals and other institutions. Through its automated systems, the company planned to ensure that the right patients received the right medications at the right times. Adverse drug events that led to deaths and suffering were a major problem according to the Institute of Medicine's 1999 study called To Err Is Human: Building a Safer Health System.

Principal Subsidiaries

Millbrook Distribution Services Co.; Armor All Products Corp.; McKesson Service Merchandising Co.; Medis Health & Pharmaceutical Services Inc. (Canada); Zee Medical, Inc.; McKesson HBOC Pharmaceutical; McKesson HBOC Automated HLTCR; McKesson HBOC Medical Group; McKesson Healthcare Del Sys; McKesson Drug Co.; McKesson HBOC Health Systems; McKesson HBOC Corporate SLTNS; McKesson Aps; McKesson Bioservices; McKesson Pharmacy Systems; McKesson HBOC Extended Care; Med Management.