HLTH dissolves into WebMD; Reed Elsevier buys up ChoicePoint; Microsoft opens windows for E.U.

By Aaron Hochman-Zimmerman

New York, Feb. 21 - On a day hushed by a data-driven drop in the market, the United Kingdom's Reed Elsevier brought out $4.1 billion for the keys to ChoicePoint Inc.

In Europe, Microsoft Inc. was busy opening up and trying to clear the air with European regulators who would have influence over the fate in European markets of Microsoft's proposed acquisition of Yahoo! Inc.

HLTH Corp. sliced itself up and folded into its subsidiary WebMD Health Corp., while speculation was heard about the chance of a revived merger between 3Com Corp. and Bain Capital Partners LLC without China's Huawei Technologies.

Insurers Meadowbrook Insurance Group and ProCentury Corp. came together on Meadowbrook's $272.6 million offer.

Meanwhile, Delta Air Lines Inc. and Northwest Airlines Inc. pilots continued the seniority fight ahead of the possible merger.

Still, any deal currently on the table is subject to the volatility and sour sentiment that the market has faced in recent months, a market source said.

"The markets are selling off on the Philly Fed news today," a market source said.

"We're continuing to get mixed signals on the economy," he said, adding: "Inflation numbers were OK yesterday" but "we're still looking at the stagflation game."

The source was quick to note that although there has been talk of stagflation, the current economic indicators are still far from the levels seen during the late 1970s.

"You get your worst inflation numbers right before you go into a recession," he said, hoping that the Federal Open Market Committee makes its future decisions with that in mind.

The other major issue facing the market is the health of the monoline bond insurers, he said.

"We're stuck in this sort of quagmire," he said.

"I expect to see something happen in the next week or two," he said, but admitted that people have been expecting action for some time.

"I don't see how they can go much longer without getting some kind of resolution," he added.

The Dow Jones Industrial Average ended lower by 142.96 by or 1.15% at 12,284.30, while the Nasdaq Composite Index fell 27.32 or 1.17%to finish at 2,299.78.

The S&P 500 dropped 17.50 or 1.29% to close at 1,342.53.

Reed Elsevier scoops up ChoicePoint

Stock of Reed Elsevier (NYSE: RUK), the London-based publisher, picked up $2.88 or 6.29% to end at $48.69 as it announced it will acquire ChoicePoint (NYSE: CPS) for $4.1 billion or $50 per share.

Reed Elsevier will also assume $600 million of ChoicePoint's debt, according to a press release.

Stock of Alpharetta, Ga.-based information security firm ChoicePoint was better by $14.61 or 43.40% to close at $48.27.

"The acquisition of ChoicePoint represents a major further step in the building of Reed Elsevier's risk management business and in the development of our online workflow solutions strategy, said Reed Elsevier's chief executive officer Crispin Davis, in the release.

"The market growth in risk information and analytics is highly attractive and ChoicePoint brings important assets and market positions that fit well with our existing business and, in combination, can be leveraged to very good effect," he said.

ChoicePoint's shareholders still must approve the sale, but the deal is expected to close in 2008, according to a ChoicePoint press release.

WebMD takes the lead

HLTH Corp. (Nasdaq: HLTH) stock gained $1.84 or 18.31% to close at $11.89 as it announced it will dissolve itself into its 84% owned subsidiary WebMD Health (Nasdaq: WBMD).

Share prices of WebMD reacted well, gaining $1.11, or 3.83%, to end the day at $30.09.

Each outstanding share of HLTH Corp. will be converted into 0.1979 shares of WebMD stock and $6.89 in cash, according to a press release.

The merger ends the controlling position in WebMD stock held by HLTH Corp. and removes WebMD's dual-class stock structure.

"The merger is expected to reduce WebMD's share count by 20%, to eliminate HLTH's controlling interest in WebMD and to capitalize WebMD with approximately $700 million in cash and investments ... Based on yesterday's closing prices, HLTH shareholders will receive a 26% premium for their shares and direct ownership in WebMD. Upon completion of the merger, HLTH shareholders will own approximately 80% of WebMD, based on the shares currently outstanding at HLTH and WebMD," said chairman and acting chief executive officer of HLTH Corp., Martin Wygod.

Microsoft airs laundry

Microsoft (Nasdaq: MSFT) stock slipped $0.12 or 0.43% to finish the session at $28.10 as it offered more transparency and interoperability to European Commission regulators.

Microsoft's potential acquisition of Yahoo!'s (Nasdaq: YHOO) assets in Europe would be subject to the commission's rulings.

"I guess that was their big announcement today," a market source said, noting no other progress in the deal for Yahoo!

"It's a step in the right direction," he said.

Yahoo! shares also fell by $0.41 or 1.42% to close at $28.42.

Second chance for 3Com?

3Com (Nasdaq: COMS) shares improved by $0.12 or 4.18% to $$2.99 after it pulled its Cfius filing on Wednesday, effectively killing its $2.2 billion merger bid with Bain Capital Partners and Huawei Technologies.

Still, it may be possible for Bain to make another attempt at 3Com without giving the 16% stake to Huawei, but because of Bain's pre-existing relationship with Huawei, this is seen as unlikely, a market source said.

"I'm sure they're going make efforts to keep things going," a market source said with measured doubt over the deal's viability.

Meadowbrook targets ProCentury

Meadowbrook Insurance Group (NYSE: MIG) shares were lower by $1.10, or 12.01%, to close at $8.06 while ProCentury (Nasdaq: PROS) stock jumped $3.18, or 20.68%, to close at $18.56.

The two insurers late Wednesday announced a deal which would bring a price of $272.6 million or $20 per share in cash and stock to ProCentury shareholders, according to a press release.

The $20 per share agreement represents a premium of 33% to the 30-day volume-weighted average sale price of ProCentury common shares.

"The combination of these two companies creates a diversified platform and gives both companies the size and product depth to compete at a level that couldn't be achieved as separate entities. We believe there are significant revenue opportunities for both sides, as well as cost savings potential," said Meadowbrook president and chief executive officer Robert Cubbin in the press release.

Meadowbrook intends to operate the subsidiaries of both companies as they were before the merger.

Pilots vie for top ace

Delta Air Lines (NYSE: DAL) shares fell by $0.60 or 3.57% to close at $16.21 while Northwest Airlines (NYSE: NWA) stock was down $0.24 or 1.39% to end at $16.98.

Like a broken zipper, the pilot's unions for both airlines were still unable to interweave their respective seniority ladders which will be necessary for union approval of the merger, a market source said.

Sources are still unsure whether anticipated board meetings of both airlines took place on Wednesday.

TierOne still waiting

Stock of CapitalSource Inc.'s (NYSE: CSE) lost $0.77, or 4.58%, to close at $16.05 while TierOne Group (Nasdaq: TONE) stock ended lower by $0.38, or 2.43%, at $15.25.

While both sides of merger are still in a position to back away, both parties are committed to the deal and are waiting on approval from the Department of Treasury's Office of Thrift Supervision.

Thursday, CapitalSource' chief executive officer John Delany acknowledged during an earnings call that OTS is engaged in many matters and a final decision is likely to take time, a market source said.

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