HEALTHEON-WEBMD: Merger Positions Co. as Industry Leader
Healtheon Corp. shares soared 25% yesterday on the news of Microsoft Corp.'s participation in its pending merger with WebMD, a move that could propel Healtheon/WebMd to the forefront of the emerging online health care industry, the San Francisco Chronicle reports. Santa Clara, CA-based Healtheon will swap 1.815 of its shares for each share of closely held WebMD, which has 54 million shares outstanding. The deal values WebMD at $9.9 billion (Fost, 5/21). Microsoft has played a key role in the deal, "motivated by the change to get a pole position in the health-technology race for its software and Internet services." Even before Healtheon became of interest, the Wall Street Journal reports, the "company helped assemble an investor group that would up putting a total of $360 million into WebMD" (Clark, 5/21). Pharmaceutical giant DuPont Inc. has agreed to throw in $180 million to underwrite physician subscriptions in the new venture, in addition to $40 million in advertising. Intel Corp., Excite Inc. and Softbank Corp. will put together $110 million for the venture (San Francisco Chronicle, 5/21). Microsoft has agreed to contribute $250 million, giving the company an 11% stake in the combined company and a board seat. In addition, the software giant will subsidize $150 million in physician subscriptions and "guarantee $100 million in Web advertising revenues, both over five years." In return, the Journal reports, Microsoft will receive $162 million over five years from Healtheon/WebMD to "place its health information on the Microsoft Network" on a new site that includes MSN Health (5/21).
"The opportunity is huge," said Michael Goff, program director for MSN, "and this is the best game in town to bring health care to the Web." Yet both WebMD and Healtheon are "losing money now," and it "isn't clear that the combined entity will win enough customers or advertising to generate profits any time in the near future," the San Jose Mercury News reports (Janah, 5/21). David Simons, managing director of Digital Video Investments, said, "Health care information management is in the dark ages, so it's ripe for the sort of automation the Internet can bring it." Taming health care, he said, "has been one of the Holy Grails of the Information Age" and the Internet "won't necessarily fix the problem" (Chronicle, 5/21).