Updated from 3:38 p.m. EDT
Having finally completed a series of mergers that swelled its employee ranks to around 6,000 from 146 over 18 months,
now plans to eliminate around 1,100 positions, the company said Thursday.
Seeking to eliminate redundancies caused by the combinations, WebMD anticipates total annualized savings of $250 million by the fourth quarter of 2001. It expects to take a restructuring charge of between $35 million and $45 million in the quarter ending on Saturday to cover the costs of the cutbacks.
But an examination of filings with the
Securities and Exchange Commission
shows that in carrying out the string of mergers, WebMD's executives may have created a potentially costly redundancy unrelated to staffing.
Thursday's layoff announcement came two weeks after the online health care service provider closed its $2.13 billion acquisition of software provider
and that company's Internet subsidiary,
WebMD has a five-year alliance with
, which owns a $250 million stake in WebMD, to provide content for health channels on
. CareInsite has a similar deal with
. But regulatory filings suggest that both of those alliances may not survive the deal.
"As a result of the mergers, AOL will be able to terminate its strategic alliance with CareInsite, as a result of which guaranteed payments of approximately $20 million due to AOL will accelerate," CareInsite wrote last month in one of its final public filings. CareInsite guaranteed AOL $30 million when it signed the deal, the company disclosed in a September 1999 filing. AOL didn't immediately respond to repeated requests for comment. Nalina Garner-Patel, a spokeswoman for Microsoft, said the parties are "talking now about how they're all going to work together."
Jeffrey T. Arnold, co-chief executive of WebMD, said in a telephone interview that the company is in talks with Microsoft and AOL. Asked whether both deals could be maintained, he said, "I think anything's possible."
The conflict is indicative of the challenges now facing the company, which has grown at a frenzied pace in a hostile marketplace.
announced in February, before the shares of many Internet companies plunged, the Medical Manager deal was valued at $5.4 billion. But WebMD's stock has fallen from a high of $75.19 earlier this year to trade in the teens this month. The shares gained $2.75, or 25%, to $14 after the company announced the layoffs.
While many Internet companies have seen their stocks tumble, the burden has been especially heavy for those in the health care sector. Earlier this year, a group of large insurance companies, seeking to protect their direct ties to doctors and hospitals, said they would create their own Internet service.
The company's proclivity for acquisitions, combined with a knack for finding deep-pocketed backers, has allowed WebMD to survive in a brutal market where many Internet start-ups have perished. WebMD also
. But those same methods have produced a web of overlapping strategic alliances and partnerships.
WebMD has a partnership agreement with
, an Atlanta-based maker of medical management software. It invested $10 million, with an option to invest another $90 million if Infocure takes public
, a subsidiary. But that deal was signed in February, and Infocure has made little progress toward an IPO for VitalWorks. Infocure did not immediately respond to requests for comment.
WebMD also has a strategic alliance with
, another online health care information systems company. The deal is contingent upon WebMD's acquisition of a stake in the company. But IDX said in March that it had received a document request from the
U.S. Department of Justice
. IDX referred calls to Tracey Moran, a spokeswoman for
a subsidiary of IDX. Both signed separate deals with WebMD. Moran declined to comment.
WebMD said it is evaluating many of its business relationships. It said it will provide details of its plan in a meeting with analysts and investors in New York on Oct. 12. (WebMD also said Thursday that it will divest itself of its plastics and filtration business, referring to
, a subsidiary of Medical Manager.)
With its announcement Thursday, WebMD is "demonstrating that we can rationalize the cost synergies of the businesses," Arnold said.
Untangling all the alliances and conflicts will be the task of a management team in similar disarray. Arnold, the 30-year-old former chief executive of Healtheon/WebMD, the company's name before this month, now shares the office of co-chief executive with Martin J. Wygod, former chairman of Medical Manager and CareInsite.
W. Michael Long serves as chairman, and Marvin Rich, formerly the chief executive of CareInsite and president of Medical Manager, is the president.
"It's going very well," Arnold said of the co-chief executive role.