WebMD will hand off The Health Network, a cable-TV network, to News Corp. The companies will also dismantle an international joint venture. WebMD said it will take a noncash charge of $275 million for the quarter ending Dec. 31.
The WebMD-News Corp. deal, inked in December 1999, is the latest WebMD pact to be rejiggered. The company ended an e-business partnership with DuPont last week. WebMD said it is reevaluating a host of partnerships so the deals make "economic and strategic sense."
Like many Internet companies, WebMD signed several big-ticket agreements in 1999 to tout key partners and boost revenue and its stock price. Many of the deals involved stock swaps that now have to be redone since Internet valuations have plummeted. In October, WebMD said it would renegotiate pacts as part of a broad restructuring.
The new WebMD-News Corp. pact has a lot of moving parts. Under the revised News Corp. deal, WebMD will retain the rights to $205 million in domestic media services over 10 years and will continue to provide content across News Corp.'s media properties for $48 million over four years.
The companies also dissolved an international joint venture, giving WebMD full control. News Corp. will transfer its 50 percent interest in the venture to WebMD. As part of the agreement, News Corp. won't be required to provide $300 million in international media services or any future funding.
In addition, WebMD exits the television business. WebMD will transfer its 50 percent stake in The Health Network to News Corp. WebMD will be relieved of future capital commitments and won't have to issue an additional 8.3 million shares to transfer its stake in the cable network. The additional shares would have been dilutive considering the company's weak share price.
As part of the new deal, News Corp. will transfer to WebMD the 155,951 shares of WebMD's Series A preferred stock issued in January 2000. WebMD will issue to News Corp. a warrant to acquire 3 million shares of its common stock at an exercise price of $15 per share. The 155,951 shares of WebMD's Series A preferred stock would have been convertible into 21,282,645 shares of WebMD common stock in January 2003.
The News Corp. pact, which is expected to be completed in the first quarter, is part of WebMD's second phase of restructuring, analysts said. The company is expected to renegotiate a host of partnerships. Analysts expect WebMD to renegotiate deals with America Online and Microsoft in upcoming weeks.
In a research note, Tucker Anthony analyst Cydney Kislin said WebMD's new deals could lead to lower revenue forecasts for 2001, but leave the company in better financial shape. Kislin rates WebMD a "buy" for "long-term, speculative investors." Seventeen analysts rate WebMD a "buy" with 10 calling it a "hold."
"Our stance on the renegotiation announcements has been, and continues to be, that WebMD management is forming a stronger financial foundation focused on achieving profitability," said Kislin. "WebMD stock is likely to be volatile until the contract renegotiations are completed."