October 20, 1998 7:00 PM PDT

Healtheon cancels IPO

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Healtheon, the online health care company led by Netscape Communications cofounder Jim Clark, today canceled its proposed initial public offering, citing poor "market conditions."

Once again, a much-awaited Internet IPO has been put off. Following the market's August downturn, the tech sector went nearly a month without a new issue. Promising startups like NetGrocer and uBid postponed plans to go public, while even investment bank Goldman Sachs--an underwriter for eBay, Inktomi, and RealNetworks' IPOs--delayed plans to make its own public offering. Another Net company, TheGlobe.com, lowered the price on its IPO just today.

"The current environment for IPOs and the volatility of the public capital markets did not represent the best opportunity for Healtheon to fund its rapid growth," Healtheon chief executive Mike Long said in a statement. "While the IPO was oversubscribed, we felt an IPO under these current adverse market conditions was undesirable."

Healtheon's IPO had been set to be priced tonight.

But one source noted the online health care and benefits management company's decision to withdraw the deal was largely due to failing to bring the right mix of investors to the table.

A number of international and retail investors jumped aboard to oversubscribe the deal at its current range of $6 to $8 a share. But institutional investors--such as portfolio and pension fund managers--were not as eager to sign up. Institutional investors tend to be holders of stock and also agree to be future buyers of the stock, compared with international and retail (individual) investors, who may look to quickly "flip" the stock during its first day of trading.

"There were some concerns about the aftermarket performance of the stock," said the source.

A few portfolio managers said they were supportive of Healtheon's business model, but felt the valuation of $6 to $8 a share was too high.

Despite the setback, Healtheon said it has received a private placement of about $40 million from a group of new and existing Healtheon investors led by founder and chairman Clark, Kleiner Perkins Caufield & Byers, and New Enterprise Associates.

The funding is well short of the $58.8 million to $78 million it would have received with its IPO offering, but Jack Dennison, Healtheon's general counsel, downplayed the shortfall. "This funding is more than adequate. When you go public, you sometimes raise more than you need," he said.

He added Healtheon stands to benefit from the deal by giving these investors fewer shares than had it gone public, and the company will still receive between $6 to $8 a share for this private placement.

Healtheon filed to go public in August. The underwriters listed are Morgan Stanley Dean Witter; Goldman, Sachs; Hambrecht & Quist; and Volpe Brown Whelan.

Healtheon lost $21.4 million for the six months ended June 30, up from a loss of $13.3 million reported for the like period a year earlier. Revenue for the latest six-month period was $20.7 million, up from $4.3 million a year ago.

 

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