Bloomberg News

WebMD Scraps Talks on Sale of Medical Information Company

January 12, 2012

(Updates shares in the second paragraph.)

Jan. 10 (Bloomberg) -- WebMD Health Corp., the Internet provider of medical information, plunged the most in almost six months after saying it ended discussions on a possible sale of the company and the chief executive officer resigned.

WebMD dropped 29 percent to $26.25 at 4 p.m. New York time, its biggest drop since July 18. Net income will be “significantly lower” in 2012 as drugmakers buy fewer ads and competition from social networking sites increases, the New York-based company said in a statement today. Chief Financial Officer Anthony Vuolo will serve as interim CEO.

WebMD was among companies Yahoo! Inc. was interested in owning as part of a tax-efficient asset swap with Alibaba Group Holding Ltd. and Softbank Corp., three people with knowledge of the matter said earlier this month. The company was undergoing due diligence by potential acquirers, which it didn’t name, when it decided to break off talks, WebMD said in the statement.

“The uncertainty at WebMD has become chaos in our view,” George I. Askew, a Washington-based analyst for Stifel Nicolaus & Co., told clients in a note today. “We would not be buyers of the shares of WebMD until the turmoil surrounding the company subsides, and we believe that is several quarters away.”

Icahn’s Plans

Vuolo replaces Wayne Gattinella as CEO, WebMD said. In November, billionaire investor Carl Icahn, who owned about 10 percent of shares, said he planned to urge Gattinella to repurchase as much as $1 billion in shares. A call to Icahn’s New York office wasn’t immediately returned.

Kate Hahn, a WebMD spokeswoman, declined to comment in a telephone interview when asked to provide more details about Gattinella’s departure or why the company ended discussions about a sale.

Askew reiterated his “hold” rating on the shares, citing WebMD’s “very bad” forecast for 2012 sales and earnings. Before today, five analysts rated the stock a “buy” versus six with holds, according to data compiled by Bloomberg.

The company said it expects 2011 sales and profits to come between the “low-end and midpoint” of projections it made on Nov. 2. That forecast called for adjusted earnings of 25 cents to 34 cents a share for the fourth quarter and sales of $147 million to $157 million. WebMD said today that revenue may fall 2 percent to 8 percent in 2012, with sales declining more in the first half of the year and improving in the second half.

“Fundamentals could remain choppy for some time,” said Mark May, a Barclays Capital analyst in New York, in a note to clients. “While an activist like Icahn could emerge, we estimate the probability of this outcome is challenging. And the recent unsuccessful sale process does not add confidence to the company’s options.”

--Editors: Bruce Rule, Andrew Pollack

To contact the reporters on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net;

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net


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