WebMD Health (WBMD)

in favor of the HLTH Merger. On July 22, 2008, HLTH completed the sale of its ViPS business, which satisfied one of the original closing conditions of the HLTH Merger.

 

Following the HLTH Merger, WebMD as surviving corporation will assume the obligations of HLTH under HLTH’s 31/8% Convertible Notes due September 1, 2025 and HLTH’s 1.75% Convertible Subordinated Notes due June 15, 2023 (which we refer to as Notes). In the event a holder of these Notes converts these Notes into shares of HLTH Common Stock pursuant to the terms of the applicable indenture prior to the effective time of the HLTH Merger, those shares would be treated in the HLTH Merger like all other shares of HLTH Common Stock. In the event a holder of the Notes converts those Notes pursuant to the applicable indenture following the effective time of the HLTH Merger, those Notes would be converted into the right to receive the HLTH Merger Consideration payable in respect of the HLTH shares into which such Notes would have been convertible.

 

On May 6, 2008, HLTH and WebMD entered into an amendment (which we refer to as the Amendment) to the Merger Agreement, which modifies certain provisions of the Merger Agreement to reflect the flexibility and additional liquidity afforded by the credit facility that HLTH has entered into, which is described below under “— Introductions — Other Recent Transactions — Credit Facilities.” Under the Merger Agreement, as amended, HLTH is not required to sell its ARS holdings as a condition to closing if the outstanding loan amount, under the HLTH credit facility, is equal to 75% of the face amount of the ARS investments held by HLTH at the effective time of the Merger or if HLTH would be capable of satisfying, as of that time, all of the conditions to making a drawdown of that amount. In either such case, the maximum reduction in the aggregate cash consideration payable in the Merger, as contemplated by the Amendment, would be $48,075 (which is 25% of the face amount of HLTH’s ARS holdings as of the date of this Quarterly Report, excluding WebMD’s ARS holdings), or approximately $0.26 per share (based on the number of shares of HLTH Common Stock outstanding as of the date of this Quarterly Report). To the extent that HLTH, instead, sells some or all of its ARS holdings for greater than 75% of the face amount, the reduction in the aggregate cash portion of the Merger Consideration with respect to the ARS that are sold would be based on the actual sale price for those holdings. The Amendment was approved by the Boards of Directors of HLTH and WebMD and by a Special Committee of WebMD’s Board of Directors.

 

Strategic Considerations Relating to the HLTH Merger.  In late 2007, HLTH’s Board of Directors initiated the process leading to the entry into the Merger Agreement with WebMD because it believed that the primary reason of many of the holders of HLTH Common Stock for owning those shares was HLTH’s controlling interest in WebMD and that the value of HLTH’s other businesses was not adequately reflected in the trading price of HLTH Common Stock. Accordingly, HLTH sought to negotiate a transaction with the Special Committee of the Board of WebMD that would allow HLTH’s stockholders to participate more directly in the ownership of WebMD and would unlock the value of the other HLTH assets. Cash on hand at HLTH and WebMD (including proceeds from the sales of ViPS, Porex and HLTH’s remaining 48% interest in EBS) would be used as a portion of the consideration in the HLTH Merger, reducing the need for issuance of shares of WebMD Common Stock. Upon completion of the HLTH Merger, as structured in the definitive Merger Agreement, HLTH stockholders will own approximately 80% of the outstanding common stock of WebMD, based on shares currently outstanding at HLTH and WebMD. The HLTH Merger will eliminate HLTH’s controlling interest in WebMD, and is expected to enhance the liquidity of WebMD shares by significantly increasing the public float. In connection with the entry by HLTH and WebMD into the Merger Agreement, the HLTH Board made a determination to divest Porex and ViPS (which divestitures are not, however, dependent on the merger occurring). HLTH’s decisions relating to the divestitures of ViPS, Porex and HLTH’s 48% interest in EBS were based on the corporate strategic considerations described above and not the performance of, or underlying business conditions affecting, the respective businesses.

 

Following the HLTH Merger, WebMD as surviving corporation will assume the obligations of HLTH under HLTH’s 31/8% Convertible Notes due September 1, 2025 and HLTH’s 1.75% Convertible Subordinated Notes due June 15, 2023 (which we refer to as Notes). In the event a holder of these Notes converts these Notes into shares of HLTH common stock pursuant to the terms of the applicable indenture prior to the effective time of the HLTH Merger, those shares would be treated in the HLTH Merger like all other shares of HLTH common stock. In the event a holder of the Notes converts those Notes pursuant to the applicable indenture following the effective time of the HLTH Merger, those Notes would be converted into the right to receive the HLTH Merger Consideration payable in respect of the HLTH shares into which such Notes would have been convertible.

 

On May 6, 2008, HLTH and WebMD entered into an amendment (which we refer to as the Amendment) to the Merger Agreement, which modifies certain provisions of the Merger Agreement to reflect the flexibility and additional liquidity afforded by the Credit Facility that HLTH has entered into, which is described in below under “—Introductions — Other Recent Transactions — Credit Facilities” (which we refer to as the HLTH Credit Facility). Under the Merger Agreement, as amended, HLTH is not required to sell its ARS holdings as a condition to closing if the outstanding loan amount, under the HLTH Credit Facility, is equal to 75% of the face amount of the ARS investments held by HLTH at the effective time of the Merger or if HLTH would be capable of satisfying, as of that time, all of the conditions to making a drawdown of that amount. In either such case, the maximum reduction in the aggregate cash consideration payable in the Merger would be fixed at $48,600 (which is 25% of the face amount of HLTH’s ARS holdings as of the date of this Quarterly Report, excluding WebMD’s ARS holdings), or approximately $0.27 per share (based on the number of shares of HLTH Common Stock outstanding as of the date of this Quarterly Report). To the extent that HLTH, instead, sells some or all of its ARS holdings for greater than 75% of the face amount, the reduction in the aggregate cash portion of the Merger Consideration with respect to the ARS that are sold would be based on the actual sale price for those holdings. The Amendment was approved by the Boards of Directors of HLTH and WebMD and by a Special Committee of WebMD’s Board of Directors.

 

Strategic Considerations Relating to the HLTH Merger.  In late 2007, HLTH’s Board of Directors initiated the process leading to the entry into the Merger Agreement with WebMD because it believed that the primary reason of many of the holders of HLTH common stock for owning those shares was HLTH’s controlling interest in WebMD and that the value of HLTH’s other businesses was not adequately reflected in the trading price of HLTH common stock. Accordingly, HLTH sought to negotiate a transaction with the Special Committee of the Board of WebMD that would allow HLTH’s stockholders to participate more directly in the ownership of WebMD and would unlock the value of the other HLTH assets. Cash on hand at HLTH and WebMD (including proceeds from the sales of ViPS, Porex and HLTH’s remaining 48% interest in EBS) would be used as a portion of the consideration in the HLTH Merger, reducing the need for issuance of shares of WHC common stock. Upon completion of the HLTH Merger, as structured in the definitive Merger Agreement, HLTH stockholders will own approximately 80% of the outstanding common stock of WebMD, based on shares currently outstanding at HLTH and WebMD. The HLTH Merger will eliminate HLTH’s controlling interest in WebMD, and is expected to enhance the liquidity of WebMD shares by significantly increasing the public float. In connection with the entry by HLTH and WebMD into the Merger Agreement, the HLTH Board made a determination to divest Porex and VIPS (which divestitures are not, however, dependent on the merger occurring). HLTH’s decisions relating to the divestitures of ViPS, Porex and HLTH’s 48% interest in EBS were based on the corporate strategic considerations described above and not the performance of, or underlying business conditions affecting, the respective businesses.