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The WebMD STORY |
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WebMD Creates A Buzz During `Quiet Period' By Carrick Mollenkamp and Karen Lundegaard
04/14/1999 The Wall Street Journal Southeast Journal Page S2 (Copyright (c) 1999, Dow Jones & Company, Inc.) How quiet should a company be during its "quiet period"? The case of one Internet start-up provides some insight. WebMD, an Atlanta company that offers a broad range of health-care services over the Internet, has hardly muzzled itself in advance of its forthcoming initial public offering to raise $55 million. The company registered its IPO with the U.S. Securities and Exchange Commission on Jan. 28, an action that, along with hiring investment-banker underwriters, triggers what securities lawyers call a "quiet period." During that period -- which ends shortly after the sale of the stock -- a company should refrain from saying anything beyond discussing general business or what is in the prospectus. Particularly off limits, lawyers say, are statements projecting success, which can be interpreted as hyping the stock before it's issued. Yet, since its filing, WebMD has issued seven press releases reporting new alliances for the company. Late last month, a WebMD official's presentation to an Atlanta health-care conference created a buzz of interest in the IPO , according to people who attended the conference. And in a newspaper interview last week, WebMD Chief Executive Jeffrey Arnold was quoted as comparing the company to Amazon.com, the online bookseller whose stock has soared. All that has some securities lawyers and executives who have gone through IPOs wondering whether WebMD is pushing the envelope of the quiet period. "It's generally our policy to not have our senior management quoted during this period," says Carmello Gordian, of the Austin office of Brobeck Phleger & Harrison, a top Silicon Valley law firm based in San Francisco. He says the fact that Mr. Arnold is quoted in news releases and newspaper interviews is "highly unusual." Mr. Arnold says the company is obeying all securities regulations and is simply reporting significant transactions that occurred after the IPO registration. SEC spokesman John Heine says the agency doesn't comment on any inquiries it may or may not be making. What a company feels comfortable saying in advance of an IPO depends on how it interprets a broad 66-year-old securities law. The 1933 Securities Act says nothing about a "quiet period," but that's the term -- and the concept -- securities lawyers have come to use in their reading of the law and its two main provisions relating to companies preparing stock offerings. The first provision says a company cannot commit fraud in a securities market. Mr. Heine says the application of the rule is to prohibit a company from conditioning the market for an IPO price that might be higher than it would have been had a company not said anything. The second says simply that a company must have a registration statement on file with the SEC. The document is a mix of legalese, a company description and the risks of investing in the stock. WebMD, for example, points out in its filing that it currently has no revenue. The second provision is intended to insure all statements about material news are contained in the prospectus. Any statements that go beyond what is written in the filing, say securities experts, could be frowned upon by regulators as self-touting. For some companies, the safest course is to say nothing at all. For example, Atlanta-based Net.Bank, an Internet banking company, clammed up completely when it filed an IPO registration in July 1997. "We told all personnel, `Listen. If anybody calls in, you just have no comment,'" says Chief Financial Officer Bobby Bowers. "The regulators will go back and look at your press releases trying to see if you were pushing up the stock. The safest thing to do is don't do anything." Walter Moeling, an Atlanta securities attorney at Powell, Goldstein, Frazer & Murphy who advised Net.Bank, says, "Even as Net.Bank went through the process, there were numerous requests for interviews. We just opted to stay away from anything like that." In general, he says, his advice for employees is to say: "I'm sorry. We have a registration on file. My damn lawyers told me to be quiet." When a company makes comments that do cross the line, the SEC can suggest that the company postpone the offering until the market has time to digest new information, which means the company has to wait longer to raise cash. Such a delay "could be disastrous," says Matthew Heiter, a Memphis securities attorney at Baker, Donelson, Bearman & Caldwell. "Who knows what is going to happen to the market?" In 1996, San Francisco-based Wired Ventures, an Internet media company, terminated an IPO , citing poor market conditions. But securities experts speculated at the time that the company shelved the IPO for another reason: Wired's CEO had issued an e-mail message to employees that was optimistic about the company's future. The e-mail then made its way to an online message board and spread throughout the world. Wired never did go public. The SEC didn't take a formal action in this matter and had no comment. Mr. Heine says the SEC has asked for delays or companies have volunteered to delay offerings, but the agency doesn't track the number of those occurrences. WebMD is already on its second attempt at going public. Last September, the company had its prospectus set for the printer but postponed the offering when the stock market turned down. Then in January, it filed its prospectus. Founded by Mr. Arnold in 1996 and originally called Endeavor Technologies, the company claims to offer a one-stop Web site for the health-care community. Health-care providers can track patients' insurance and billing records, participate in chat rooms dedicated to health issues, do research using medical encyclopedias, buy medical books and order supplies. WebMD also will create personal Web pages for doctors where patients can look up charges and services. Monthly fees for the services start at $29.95. On March 10, six weeks after registering its IPO , WebMD issued a press release announcing a $52 million alliance with Lycos, a large Internet hub that is in talks to merge with cable-television company USA Networks. In the press release, Mr. Arnold said, "We look forward to delivering timely and comprehensive healthcare content to Lycos' nearly 30 million users, as well as USA Networks' 70 million television homes." Eight days after the Lycos announcement, WebMD and Atlanta-based Premiere Technologies; a provider of e-mail, voice-mail and fax services that owns 10% of WebMD, together announced a pact for Premiere to supply its technology to WebMD. Premiere's news release, which quotes Mr. Arnold as praising the agreement, was headlined, "Premiere Technologies and WebMD revolutionize healthcare communications." Mr. Arnold says the announcements are part of the company's "regular course of business" since it launched its Web site in October. "We're not commenting on the IPO ," he says in an interview. "We're just stating facts about the business. We're doing major alliances, multimillion-dollar deals that are material to announce." He also says all of the company's press releases have been approved by WebMD's attorneys as well as lawyers for the company's underwriters. (WebMD's attorney Glenn Sturm, at the Atlanta firm of Nelson, Mullins, Riley & Scarborough, didn't return repeated phone calls.) Mr. Gordian, the securities lawyer at Brobeck Phleger, says companies indeed have the right to continue making announcements in their normal course of business. "Having said that," he adds, "it has to be normal course." In general, "a company should not, just because it is going public, now start to put out all kinds of press releases that are not normal course." WebMD launched its Internet network on Oct. 5. It had a total of five press releases about alliances between then and Jan. 28, the date of its registration filing. It amended the filing on Feb. 26 to include new events such as the acquisition of an online health service. Mr. Heiter, the Memphis securities attorney, says he advises that executives stick to the facts of the press release if they have to issue one at all. Otherwise, a company official might say something bold about the company's prospects -- and have it turn out to be untrue. "That's the danger," he says about press interviews. Later last month, at the annual National Managed Health Care Congress in Atlanta, a WebMD official spoke on the panel that discussed Internet commerce for managed-care organizations. A moderator on the panel says WebMD created a buzz at the conference. William Young, vice president at Sunnyvale, Calif.-based eHealthInsurance.com, recalls that WebMD talked about a project that will put kiosks at malls so people can access health-care information. "That caused a lot of excitement," Mr. Young says. Sitting in the audience of about 100 people was William Michalak, an analyst at Wachovia Securities in Atlanta. He recalls a WebMD official describing the company's products and their importance to the health-care industry. He says the comments struck him as odd considering the company is in a quiet period. "Usually you don't see companies doing that," he says. Mr. Moeling, the Atlanta attorney, says that in such contexts, anything beyond a technical analysis of the company isn't wise. "Don't talk about how great the company is," he advises. "No matter how bad you want to, resist the temptation." Mr. Arnold says WebMD made a presentation at the meeting because it was a sales conference, not one for financial investors. "Those are our customers, not our shareholders," he says. "We didn't disclose any financial numbers." But the audience did seem interested in WebMD's stock. "Every place we went," says Mr. Michalak, people said, "`Can you get me some WebMD'" shares? Then last week, WebMD announced in a press release one of its biggest deals yet: a $220 million investment from DuPont of Wilmington, Del. The five-year agreement allows DuPont to market and sell its nutritional and pharmaceutical products at WebMD's Web site, the release said. In subsequent interviews with reporters, Mr. Arnold described WebMD as building a "mega-medical mall" on the Internet. And in an article on the front page of the Atlanta Journal-Constitution's business section about the pact, Mr. Arnold was quoted as saying, "We want to be the Amazon.com of health-care for the Web." Mr. Gordian, the securities lawyer, questions such moves. "My view is that if you put out a press release, they ought to be strictly factual and really avoid subjective statements," says Mr. Gordian, whose firm has been an adviser on more than 200 stock offerings in the past three years. Of Mr. Arnold's comments in press releases and interviews, he says, "That's highly unusual. You run a risk there. Things can be taken out of context." Indeed, Mr. Arnold says his comparison to Amazon.com was one sentence of a paragraph-long answer to the reporter's question about how the company will brand itself. According to CommScan, a New York securities-research firm, WebMD is scheduled to price its IPO the week of April 19. A WebMD official declines to confirm the date. He cites the company's quiet period. --- |