Shareholders Fight $2.8 Billion Sale of WebMD to Kohlberg Kravis Roberts

MANHATTAN (CN) — Shareholders filed a federal class action challenging WebMD’s proposed  $2.8 billion sale to Kohlberg Kravis Roberts.

Lead plaintiff Jeffrey Rubin claims the company’s board and executive failed to disclose conflicts of interest for WebMD insiders and its financial adviser, J.P. Morgan Securities.

Only WebMD Health Corp. and its top executives and board are defendants — not J.P. Morgan or Kohlberg Kravis Roberts.

The Wednesday complaint of securities violations claims WebMD insiders will reap a substantial financial windfall as under the merger agreement all unvested equity-based awards held by company executives will be converted into the right to receive cash payments.

Defendant WebMD CEO Steven Zatz, who recused himself from voting on a recommendation letter to shareholders before the merger, stands to garner more than $18 million from cashing out outstanding company stock options, according to the 28-page complaint.

Other WebMD executives stand to a total of more than $30 million through golden parachute payments, even if they are fired after the acquisition, according to the complaint.

Kohlberg Kravis Roberts is to buy all outstanding common shares for $66.50 apiece in cash.

WebMD and Kohlberg Kravis Roberts announced the merger in a joint statement on July 24, in which they described the $66.50 per share tender offer as “a premium of approximately 20 percent over WebMD’s closing share price on July 21, 2017.” They anticipate closing the deal in the fourth quarter of 2017.

“Throughout this process, our Board has conducted diligent analysis and thoughtful deliberations,” CEO Zatz said in the announcement. “WebMD and its financial advisers had a process that involved outreach to more than 100 strategic and financial parties, and we are confident that this transaction maximizes value for our stockholders.”

WebMD, which publishes health and medical information online, reported revenue of $705 million in 2016. It did not respond to requests for comment Thursday afternoon.

Rubin seeks class certification, an injunction against the merger, and rescission and damages if it is completed. He is represented by Richard Acocelli at WeissLaw in Manhattan.

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