RealTime IT News

Drkoop.com: On the Rumor Mill

Word hit the wires last week that struggling drkoop.com might be in talks to merge its operations with MillenniumHealth Communications, an online flea market for new and used medical supplies and equipment. Upon closer examination, it looks like MillenniumHealth jumped the gun by announcing talks, and most likely intentionally.

Drkoop released a statement setting the record straight shortly following the so-called merger leak. The online health care Web site made clear that it played no part in releasing the news, and that MillenniumHealth's wedding announcement was "highly premature." In fact, drkoop went on to say that it had received a non-binding letter of intent only after news of the offer was made public.

In addition to the curious leak, MillenniumHealth's letter of intent has a few extra goodies thrown in. It contains a no-shop provision and a $1 million break-up fee for good measure. While both requests aren't necessarily unusual on a typical stock swap deal, in this case, they appear to point to a healthy dose of unnecessary grandstanding and arrogance on the acquirer's part. Let's face it, if drkoop could muster a million dollars in cash, the firm wouldn't be using it as good faith collateral in merger talks.

Despite the inappropriate announcement, beggars can't be choosers; and drkoop is on dot-com skid row, trading at a buck and half. Likely figuring things couldn't get much worse, the company served up a triple dose of bad news last week to investors. First, it was announced that its Chief Operating Officer and Chief Financial Officer had tendered their resignations, but that both would remain as consultants. Which means the pair is still holding onto unvested stock options in the unlikely event of a miracle turnaround.

Next up was an earnings pre-announcement that Q2 revenues would come in lighter than expected and the disclosure that drkoop had been reducing its staff by 35% over the last three months. Unfortunately, things could get worse for the company. Just days ahead of the bad news, ambulance chasers arrived in an effort to squeeze blood from a rock. A class action lawsuit filed in the Lone Star state slapped drkoop and the man behind its namesake with a fraud suit.

The lawsuit centers around a letter penned by drkoop's auditor that expressed substantial doubt about the company's outlook as a going concern. Dated mid-February of this year, the letter wasn't disclosed to the public until a month and a half later, coinciding with its annual report filing. In the meantime, a handful of bigwigs inside the company were busy dumping shares. When the news broke, the share price took a 50% haircut, but not before insiders had already sold ahead of the damaging announcement.

With an avalanche of bad news blanketing drkoop.com, it begs the questions: why on earth would MillenniumHealth be so eager to get hitched to a sinking ship, and what does that say about Millennium? It speaks volumes, but it also shows that the real reason behind the leak was likely the free publicity it would generate for a site no one's ever heard of. And you know what? It worked.

Any questions or comments, love letters or hate mail? As always, feel free to forward them to kblack@internet.com.

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