Update: drkoop Makes Diagnosis, Says Merger Offer Premature

Updated from 3:56 p.m. EDT

Drkoop.com (KOOP Quote) received a merger offer from a privately-held Virginia company on Friday, though hours later the beleaguered provider of online health care information said discussion about a transaction was premature.

The roughly 1-year-old MillenniumHealth Communications said it sought a partnership that would extend both companies' influence in the online health care information world and lift Austin, Texas-based drkoop.com out of its financial doldrums.

Later, though, drkoop made a proclamation of its own, saying it had not "authorized" MillenniumHealth's press release. Drkoop, co-founded by former U.S. Surgeon General C. Everett Koop, said it had not reached an accord, but still would consider the offer.

The deal proposed by MillenniumHealth of Reston, Va. calls for a binding "no-shop" agreement and a $1 million breakup fee, drkoop.com said in a press release. Prior to the announcement, drkoop.com said, officials on both sides had met only once.

William P. Danielczyk, chairman and chief executive of MillenniumHealth, said he submitted a merger proposal to drkoop.com on Thursday, putting "the ball in drkoop's court."

Danielczyk declined to provide any details about the proposal, but he said drkoop.com officials were receptive to his overtures.

"It could be very beneficial for drkoop shareholders as well as for us," Danielczyk said in a telephone interview. "Right now, with the current situation at drkoop, we offer a fresh look and a clear vision."

Shares of drkoop.com closed up 9/16, or 54.6%, to 1 19/32 on Friday. Still, the company's stock price fell sharply from its 52-week high of 33 1/2 as its financial problems mounted.

The company said last week that it expected its second-quarter loss to be larger than Wall Street's estimates and that two top executives had resigned.

The news is only the latest setback for drkoop.com. The company's cash supply has declined in recent months, and in March, auditors questioned whether it could remain financially viable in the future. The company also has laid off about a third of its staff.

In any event, MillenniumHealth may not be the ideal suitor for drkoop.com, a struggling company in dire need of a cash infusion. Chances are, analyst Richard Lee said, drkoop is talking with a few other potential partners.

"It's a little surprising to me that the one making the offer is another start-up company," said Lee, who works with Wit Capital, "because the situation at drkoop requires stability. They need to cut the burn rate. And I'm not sure this deal accomplishes that."

Danielczyk, though, said a deal would bring together two complementary companies. Drkoop, he said, has a good "community site," while MillenniumHealth offers a strong "commerce" site.

MillenniumHealth, parent company of Health24News.com, provides online news, but also serves as an Internet marketplace for medical equipment and supplies.

The proposal calls for a publicly traded company that would be called MillenniumHealth Communications, but the drkoop.com name and the Web site, Danielczyk hoped, would remain virtually the same.

"It's a company that needed a facelift," Danielczyk said. "The company needs a new image. The perception has to change."