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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Drkoop.com: On the Rumor Mill
