By Momei Qu

Contributor, Stock Traders Daily -  Rule-Based Trading Strategies

(La Jolla, CA) WebMD Health Corp (Nasdaq: WBMD – Trading Report), a leading provider of health information services, announced this morning that it will acquire parent company HLTH Corp (Nasdaq: HLTH – Trading Report) in an all-stock, tax free deal. WebMD will be the surviving entity and each share of HLTH will convert into 0.4444 shares of WebMD common stock. The deal was originally scheduled for February 2008 but was put on hold due to market conditions. Namely, the companies were afraid that the amount of debt HLTH would be a concern for the healthy WebMD.  

So what is significant about this transaction? First of all, it could be a sign that the market is unfreezing. During the second half of last year and the beginning of this year, companies that were in talks of a merger, IPO, or financing deal often put the deal on hold in hopes that credit will become more accessible. The WebMD and HLTH merger is one example of the unfreezing of the pipeline – perhaps we will begin to see an increase in deal activity as other companies consider moving forward as well?

Additionally, this could be a merger that could trigger another potential buyer in the field. Although other healthcare providers and even search engines have tapped into the market of online health services, WebMD has always been a leader. In the first quarter of this year, WebMD saw its total site traffic increase by 24%. Its success will make it a target for larger companies trying to boost its position in health information services.

Back in February when the deal was first in the talks, The Deal.com stated that Microsoft (Nasdaq: MSFT – Trading Report), Yahoo (Nasdaq: YHOO – Trading Report), and Google (Nasdaq: GOOG – Trading Report) could all be buyers for the combined company. The Deal predicted that Google would hold the highest level of interest as it tries to improve its existing online health system, which stores medical records online and allows people to build online profiles. 

WebMD might not be the only target. Consolidation of online health companies have grown in recent months due to the lack of funding for advertising. And as the population becomes more dependent on the internet and more health conscious, companies will be looking to strengthen their positions in health information services, whether it’s through internal development, which would require financing, or through acquisitions.