Investors bet big on Drkoop.com recovery

Shares of Drkoop.com (Nasdaq: KOOP) surged Wednesday after the company renegotiated its pricey portal pacts with America Online (NYSE: AOL) and Go.com (NYSE: GO).

In early trading, Drkoop.com was trading at 4 29/32, up 2 9/16 or 109 percent.

After the closing bell, the company said it restructured its portal deals and retained Bear Stearns to pursue strategic alternatives.

In a report, Caren Taylor, an analyst with E*Offering, said the Drkoop.com's moves removed "an albatross from the company's neck."

"The renegotiated agreements and extra time should help strengthen Drkoop.com's negotiating position with respect to potential partners and/or acquirers," she said in a report. "That said, despite these positive announcements, we continue to rate the shares of KOOP a hold."

Under the new AOL deal, the online service powerhouse will convert its previous agreement, including all future cash commitments as well as warrants, into 3.5 million shares of Drkoop.com common stock. AOL now owns 10 percent of Drkoop.com.

Drkoop.com made a big splash last July when it inked a four-year, $89 million alliance with AOL. Drkoop.com, which has about four months of cash left, couldn't pay the bills. It still owed AOL $65 million, or nearly all of Drkoop.com's market capitalization. The AOL deal now expires April 15, 2001.

Drkoop.com said separately that it restructured its distribution pact with Go.com. Under the restructuring, Go.com will receive an undisclosed amount of cash and additional warrants to purchase shares of Drkoop.com common stock.

Investors are betting the new deals will make Drkoop.com a more appealing takeover target. Tim Miller, president of Webmergers.com, said Drkoop.com is one of the more appealing takeover targets based on monthly unique visitors.

"There is hope for CDNow and Drkoop," said Miller. You can't tell me these people aren't valuable." CDNow (Nasdaq: CDNW) is Miller's most undervalued e-commerce company based on users. Drkoop.com is Miller's second most undervalued content company.

But Drkoop.com isn't off the critical list yet. Without a buyer or new financing, company officials said Drkoop.com will run out of cash in about five months even with the renegotiated portal deals.

Drkoop.com said it will report a first quarter loss between 80 cents a share and 82 cents a share. A First Call Corp. poll of 6 analysts predicted a loss of 52 cents a share. In addition, revenue will be much lower than expected at $4.5 million to $4.7 million.

Meanwhile, Chase H&Q, one of the underwriters for Drkoop.com's IPO, cut the stock to a "market perform" from a "buy." Chase H&Q maintained a "buy" rating (outperform the S&P 500) as Drkoop.com plunged on cash concerns. Since Dec. 31, the S&P is up 0.56 percent. Drkoop.com is down more than 80 percent from a Dec. 31 closing price of 11 7/8.