WebMD plans merger with HLTH; Broadcom again extends tender offer; Wyeth sets vote date

By Stephanie N. Rotondo

Portland, Ore., June 18 - WebMD Health Corp. announced Thursday it will combine with parent company HLTH Corp. in an all-stock offer.

In an interview with Prospect News, one analyst said the pros of the deal "outweighs the cons," especially for WebMD shareholders.

Meanwhile, in an unsurprising move, Broadcom Corp. has extended for the second time the expiration date of its tender offer for Emulex Corp. equity. But as of Wednesday evening, fewer shares had been tendered and not withdrawn than as of the original offer deadline.

Wyeth has scheduled its annual meeting of shareholders. Of the topics to be discussed, shareholders will have the opportunity to vote on a pending merger with Pfizer Inc.

The stock market shook off the weakness seen earlier in the week, with the Dow Jones Industrial Average ending modestly higher at 8,554.77, up 37.59 points, or 0.68%. The Nasdaq Composite index, however, softened some to 1,807.72, a decline of 0.34 of a point, or 0.02%. The Standard & Poor's 500 index rose by 7.60 points, or 0.83%, to 918.31.

WebMD to join parent

WebMD Health and parent company HLTH have agreed to merge in a tax-free, all-stock deal valued at around $1.29 billion.

Under the terms of the deal, holders of HLTH stock will receive 0.4444 shares of WebMD for each HLTH share. Additionally, WebMD will assume all of HLTH's outstanding convertible debt. WebMD's class B stock will also be eliminated.

The transaction is expected to close sometime in the second half of 2009.

"We are very pleased to announce this merger transaction today and believe that it is in the best interests of both HLTH and WebMD stockholders to combine the companies at this time," Martin J. Wygod, acting chief executive officer and chairman of HLTH and chairman of WebMD, said in a statement. "This transaction will eliminate the inefficiencies associated with having two separate public companies and HLTH stockholders will receive a direct ownership in WebMD through a tax-free transaction. Completion of this merger will significantly increase the liquidity of WebMD shares."

"They are revisiting a prior strategy that was shelved late last year due to market conditions," said Anthony Petrone, analyst with Maxim Group. He was referring to a failed sale in October 2008.

That sale was not successful because of HTLH's "inability to sell some of its legacy units," including the Porex unit. Some assets have since been sold off for additional capital, but the search continues for a buyer for Porex, which makes porous plastic products and components.

HLTH will be "continuing its sales process for Porex with potential buyers and is aiming to conclude that process as quickly as possible," the press release read.

But another "sticking point" was HLTH's convertible debt. In October 2008, the amount of debt was considered too burdensome for WebMD to assume. However, Petrone noted that HLTH has bought back around $95 million of its two outstanding issues and has the ability - through a credit facility arranged with Citigroup - to buy back even more before the completion of the deal.

"Overall, this is a good transaction for Web holders," Petrone said. He gave three reasons for that conclusion, including the removal of the dual-class equity structure. An increase in liquidity also helps as well as the fact that "ultimately, the slate is now clean for a streamlined process if an acquirer comes along."

Also, Petrone said that the deal benefits HLTH holders, as it gives the company "greater access to [WebMD's] underlying business," i.e., online medical advertising.

Though Petrone said he is "still digesting" the news, he had little negative to say of the merger. The one downside he did note was the difference in capital structure that will come as a result of the deal. Once the companies combine, WebMD equity holders will be subordinated to HLTH convertible holders.

In the end, however, Petrone opines that "the pros outweigh the cons," and recommends buying into WebMD.

WebMD's equity gained $2.12, or 7.52%, to $30.33, and HLTH"s stock increased $1.45, or 12.33%, to $13.21.

New York-based WebMD provides health information services through its online portals and publications. HLTH, formerly Emdeon Corp., is a health-care business, technology and information services company based in Elmwood Park, N.J.

Broadcom extends offer

Broadcom said in a press release issued early Thursday that it once again extended its tender offer for Emulex equity.

It is the second time the offer deadline has been pushed out. Originally, the offer was set to close June 3 and then was pushed to June 17. Under the new deadline, Emulex shareholders can tender their stock until 11:59 p.m. ET on July 1.

"Broadcom's highly certain, all-cash offer represents a 40 percent premium over the Emulex stock price on the day before we made our offer. Emulex stockholders should have a chance to evaluate the fairness of our offer - they deserve better than the barriers and delaying tactics that the Emulex board has put in place," Scott A. McGregor, president and CEO of Broadcom, said in a the release.

"While this is only one of several paths toward the network convergence opportunities that are over the horizon, we continue to believe a combination with Emulex would give everyone - customers, employees and stockholders of both companies - the best way to accelerate network convergence over the long term and deliver meaningful value in the near term."

As of 5 p.m. ET on Wednesday, approximately 2.25 million shares had been tendered and not withdrawn. That compares to 2.27 million shares that had been tendered and not withdrawn as of June 3.

But despite the disappointing showing, market players have indicated that Broadcom could sweeten its offer.

Broadcom's and Emulex's stocks ended mixed, with Broadcom's falling 85 cents, or 3.27%, to $25.11 and Emulex's gaining 15 cents, or 1.41%, to $10.76.

Emulex is a Costa Mesa, Calif., storage networking company. Irvine, Calif.-based Broadcom provides semiconductors for wired and wireless communications.

Wyeth to vote

Pharmaceutical company Wyeth has set the date for a stockholder vote on a proposed merger with Pfizer.

The Madison, N.J.-based company will hold its annual meeting on July 20. Wyeth's board of directors has already recommended voting for the merger.

Under the terms of the takeover, Wyeth stockholders would receive $33.00 in cash and 0.985 shares of New York-based Pfizer.

The deal is expected to close in the second half of 2009.

Wyeth's shares moved up 23 cents, or 0.52%, to $44.83. Pfizer's stock finished 36 cents, or 2.47%, higher at $14.94.

Mentioned in this article

Broadcom Corp. Nasdaq: BRCM

Emulex Corp. NYSE: ELX

HLTH Corp. Nasdaq: HLTH

Pfizer Inc. NYSE: PFE

WebMD Health Corp. Nasdaq: WBMD

Wyeth NYSE: WYE

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