Updated from 3:16 p.m. EST

McKesson HBOC's

(MCK) - Get Report

stock price jumped 3 3/16, or 13%, to 27 3/16 Tuesday after it signed an agreement to sell its subsidiary

McKesson Water Products

to

Danone

(DA)

of France for $1.1 billion in cash. (McKesson closed up 2 5/16, or 12%, at 25 5/16.)

McKesson of San Francisco said in a statement it decided to divest itself of McKesson Water Products, the third-largest processor, marketer and distributor of bottled water in the U.S., as part of its effort to concentrate on core activities.

"Given our strategic focus on improving health care quality and cost through our market-leading positions in health care information technology and supply management, McKesson Water Products was not a core business," the company said.

Analysts applauded the deal.

"The sale of the water business is a positive step for the company," said Seth Teich, an analyst at

First Union Securities

.

Teich said McKesson, which will record net proceeds of $700 million from the sale, will now be in a better position to get its health care and information technology businesses back on track. Teich rates the company a hold and has not done any underwriting for it.

McKesson's share price has plunged from its 52-week high of 89 3/4, reached a year ago, battered by a slew of bad news. Over the course of 1999, McKesson missed earnings expectations while a $15.9 million acquisition of

HBO&C

proved even more costly after McKesson disclosed that the company had improperly kept its books.

Danone's shareholders were less enthusiastic about the deal, sending the share price down 1/4, or 1%, to 48 5/16. (It closed unchanged at 48 9/16.)

Danone is France's leading food group and the second-largest bottler of water worldwide. Danone, whose brands include

Evian

and

Dannon Natural Spring Water

, posted net sales of $14.4 billion in 1998.

The deal, which has been approved by the boards of directors of both McKesson and Danone, is subject to regulatory approval and other conditions.