McKesson Slaps 'For Sale' Sign on San Francisco HQ With Plans to Lease Back a Portion of Building

McKesson Slaps 'For Sale' Sign on San Francisco HQ With Plans to Lease Back a Portion of Building August 25, 2016
By Alex Keown, BioSpace.com Breaking News Staff

SAN FRANCISCO – McKesson Coporation plans to sell off its San Francisco headquarters building with plans to lease back a portion of the space for its headquarters, the San Francisco Business Times reported this morning. The sale of the building is expected to generate about $300 million.

Under the lease program, McKesson plans to occupy about 200,000 square feet of space, with about 1,200 employees in the building. The building has nearly 500,000 square feet of usable space, the Times said. In addition to reducing its footprint in the building it owns, the Times said McKesson plans to consolidate a number of other offices across San Francisco and have those 1,200 employees under one roof.

Mike Huaco, senior vice president of real estate for McKesson, said the “sale-leaseback” program the company is undertaking is part of a “strategic opportunity to free up a significant amount of capital.” In an email to the Business Times, Huaco said the company intends to take the savings and “invest these resources back into our employees and our customers, and continue our focus on driving shareholder value.”

The sale of the building comes a few months after McKesson terminated 1,600 employees as part of a need to trim costs due to the loss of some key customers, including the expiration of a contract with Optum, a division of UnitedHealth Group and contract changes with Omnicare Corp. However, the sale of its building in San Francisco is unrelated to this event, the Times noted.

In January, McKesson conducted a “strategic review” of its cost structure following the loss of its customers and said “reductions to our workforce would be necessary to align our cost structure with our business needs," Reuters reported. McKesson began to notify workers of the pink slips this month, Reuters said. Those employees faced with termination will receive severance packages, according to reports. McKesson, which provides medications to drugstore chains like CVS and Target, employs about 70,400 full-time employees.

Earlier this month, McKesson recently announced a hiring spree at a distribution facility in Iowa. Over the next few months the company said it plans to hire about 100 additional employees due to the volume of business going through the site. The distribution center serves the Midwestern United States and the north central plains region, shipping medications to pharmacies such as Wal-Mart, Hy-Vee and CVS.

While McKesson is slashing some employees, the company has been flexing its M&A muscle to spur some growth. In February, the company snapped up Vantage Oncology, LLC, a national provider of radiation oncology, medical oncology and integrated cancer care. At the same time, McKesson acquired Biologics, Inc., an oncology pharmacy services company. The acquisitions came at a cost of about $1.2 billion, the company said. In March, McKesson struck a $3 billion deal to acquire Rexall Health, a drugstore chain, to strengthen McKesson’s position in Canada’s pharmaceutical supply chain, the company said.

Earlier this year, McKesson also signed a generic drug sourcing agreement with Wal-Mart that includes an expanded long-term distribution agreement.

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