As expected, Healtheon Corp announced Thursday that it had struck a deal to merge with WebMD Inc in a stock-swap valued at roughly $5.5bn when announced, but worth about $7.14bn after Healtheon shares rose 20% on the news. Healtheon’s stock soared $20.375 to close at $100.625 amid optimism that the new company will become the premier internet provider of healthcare services. Healtheon went public in February and was trading at about $30 just two months ago. The transaction will be handled as a straight 50-50 merger, with each company’s existing shareholders owning half of the combined entity. Privately-held WebMD’s holders will receive a fixed ratio of 1.815 Healtheon shares for each share owned. The new company also secured investments from Microsoft Corp and others worth an additional $360m.
Healtheon/WebMD aims to be the first comprehensive internet healthcare and e-commerce services provider through the combination of WebMD’s store of medical information, brand name and subscriber base with Healtheon’s transaction processing platform. The company says it will connect doctors, medical institutions, consumers, labs, pharmacies and consumers with products and services for managing information, communications and transaction processing for such things as bill payment or insurance verification. The company reckons that it will not only streamline what it calls inefficient paper-based processes but also provide an overall improvement in the quality of care.
Microsoft will chip in a $250m equity investment and says it will also provide advertising and e-commerce opportunities, subscriptions and co-marketing campaigns worth approximately $300m over the next five years. The software giant will underwrite physician subscriptions – the idea being that if the company waives its $30 per month fee for now it can sign up a massive number of customers which it can make money from later on a per-transaction fee. Microsoft has already handed over $100m of its total commitment. The rest of the $360m in equity investments will come from Covad Communications Inc, Excite Inc, Intel Corp, Softbank Corp, and Superior Consultant Corp, each of which either has, or will have, some sort of strategic agreement with Healtheon/WebMD. Separately, the company struck a deal with Medic Computer Systems Inc which will see Medic’s practice management systems and clinical applications integrated with the Healtheon portal (see related story).
Healtheon’s co-founder and chairman, James Clark – also co- founder and former chief executive officer of Netscape Communications Corp – will serve as a board member at Healtheon/WebMD. Michael Long, currently CEO of Healtheon, will become chief operating officer and chairman and WebMD CEO Jeff Arnold will assume that role at the new firm. The merging parties will each have four seats on the board of directors and Microsoft will have one. The new company will be headquartered in Atlanta and have a total of 10 offices nationwide. Including Healtheon’s recently-announced agreement to acquire Mede America Inc, the combined entity will have over 1,300 employees.
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