McKesson and American Drug Stores Announce $2-Billion Supply Management Agreement.

SAN FRANCISCO--(BUSINESS WIRE)--June 30, 1998--McKesson Corporation (NYSE:MCK) and American Drug Stores, a division of American Stores Company (NYSE:ASC), one of the nation's largest food and drug retailers, announced today that they have signed an agreement to create a broad-based supply management alliance.

Under the new agreement, which has an initial five-year term, McKesson will be the sole supplier of pharmaceuticals to the more than 1,100 drug store and food store pharmacies of American Drug Stores, Inc. In addition, McKesson will provide value-added services and technologies designed to improve operations for American Drug Stores. American Drug Stores operates 596 Osco Drug stores, 354 Sav-on drug stores and more than 150 pharmacies in Lucky and Acme food stores.

McKesson anticipates its comprehensive supply management agreement with American Drug Stores will generate more than $400 million in annual revenues from direct store deliveries. McKesson currently has revenues in excess of $70 million annually from pharmaceutical distribution to Osco Drug stores.

In addition, McKesson will receive supply management income for purchasing $1.5 billion annually of branded and re-packaged pharmaceuticals for American Drug Stores warehouses in La Habra, Calif., and Elk Grove, Ill. The starting date for full implementation of the agreement is August 1, 1998.

"We are delighted to announce this agreement whereby we have expanded our long-term relationship with American Drug Stores to become their sole source for pharmaceutical products," said Jack W. Fragie, senior vice president, National Accounts, McKesson Customer Operations Group.

"We have already begun working together to improve efficiencies. Longer term, we will build on this base of business with additional new technologies that are designed to increase pharmacy productivity and decrease inventory investment at both the warehouse and individual store level. Ultimately, all of these initiatives will save consumers money and improve the efficiency of our health care system."

McKesson is a leader in providing service offerings and quality of service to retail pharmacies by working in partnership with its customers to help them enhance their operating efficiency, reduce their working capital and manage their businesses more effectively. These offerings include the McKesson Customer Care Center, where a dedicated customer-service staff will provide a single-point- of-contact and standardized business approach for the various American Drug Stores individual sites.

Other McKesson customer service offerings include: McKesson TeleStock(SM), which allows stores to check McKesson inventory; TeleSurvey(SM), which enables real-time digital surveys of stores; Quick-Tel(SM), which provides automated updates on delivery schedules; and OSCAR(SM), a centralized call tracking database.

"We are confident that McKesson's focused approach to our business will enable us to streamline our pharmaceutical supply chain and reduce working capital," said John Dyer, senior vice president, Health Care Services, for American Drug Stores.

"Their innovative logistics system and single focal point for all our pharmaceutical needs will allow us to achieve a higher level of standardization and improve efficiencies across our base of stores and pharmacies. We look forward to the greater personal attention that our patient customers should receive as a result of our alliance with McKesson."

American Stores Company is one of the nation's largest food and drug retailers. It operates 1,558 stores in 25 states including 267 food and drug combination stores, 540 supermarkets and 751 stand-alone drug stores. The company operates 1,105 pharmacies within its stores. General information about American Drug Stores is available through its website at http://www.americandrugstores.com.

McKesson Corporation, a Fortune 100 company, is the leading health care supply management company in North America through its U.S. Health Care businesses; its Canadian subsidiary, Medis Health and Pharmaceutical Services; and its interest in Mexico's Nadro. The company also owns McKesson Water Products, one of the nation's largest providers of bottled drinking water. More information about McKesson can be obtained on the World Wide Web at: http://www.mckesson.com.

McKesson Cautionary Note: Except for the historical information contained herein, the matters discussed in this press release may constitute forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These statements may be identified by their use of forward-looking terminology such as "believes," "expects," "may," "should," "intends," "plans," "estimates," "anticipates" and similar words. Risks and uncertainties include the speed of integration of acquired businesses, impact of continued competitive pressures, success of strategic initiatives, implementation of new technologies, continued industry consolidation, changes in customer mix, changes in pharmaceutical manufacturers' pricing and distribution policy, the changing U.S. health care environment and other factors discussed from time to time in reports filed by McKesson with the Securities and Exchange Commission. The company assumes no obligation to update information contained in this release.

American Drug Stores Cautionary Note: This press release may contain certain forward-looking statements about the future performance of the Company which are based on management's assumptions and beliefs in light of the information currently available to it. The Company assumes no obligation to update the information contained herein. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements including, but not limited to: competitive practices and pricing in the food and drug industries generally and particularly in the Company's principal markets; the implementation of the Company's re-engineering initiatives in accordance with the currently contemplated schedule and budget; the Company's relationship with its employees and the terms of future collective bargaining agreements; the costs and other effects of legal and administrative cases and proceedings; the nature and extent of continued consolidation of the food and drug industry; changes in the financial markets related to the cost of the Company's capital; the ability of the Company to access the public debt and equity markets to refinance indebtedness and fund the Company's capital expenditure program on satisfactory terms; supply or quality control problems with the Company's vendors; changes in the rate of inflation; changes in economic conditions which affect the buying patterns of the Company's customers; and the ability of the Company and its vendors, financial institutions and others to resolve Year 2000 processing issues in a timely manner.

Note to Editors: McKesson news releases are available at no charge through McKesson's NewsOnDemand fax service. To immediately receive an index of available releases, call 1-800-344-6495 and press 2.

CONTACT: McKesson Corporation

Larry Kurtz, 415/983-8418

or

American Stores Company

Judie Decker, 510/678-5444