August 6, 2000
MARKET WATCH
Making and Keeping Promises Are Different Things
By GRETCHEN MORGENSON
nytimes.com
Magnificent promises are always to be suspected.
So said Theodore W. Parker, a decorated Army officer from the mid-20th century. His words are wiser than ever today.
On April 7, James H. Clark, founder of Netscape, co-founder of Healtheon/WebMD and all-around Silicon Valley pioneer, astounded investors by vowing to buy up to $200 million of Healtheon stock. The shares of the company, an Internet health care concern, had crashed along with other Web-based stocks from $75.1875 in January to $21.6875 in April. Even on today's Wall Street, where $200 million may no longer qualify as big money, Mr. Clark's was a magnificent promise. The stock jumped 35 percent on the news.
"I am more confident than ever in Healtheon/ WebMD's vision of connecting physicians, payers and consumers via the Internet," Mr. Clark said on April 7.
At the time of the announcement, the company said that Mr. Clark and his family owned 11.7 million shares of Healtheon.
Four months have passed. It is time for the promise police to check on Mr. Clark's progress.
According to filings with the Securities and Exchange Commission, Mr. Clark bought 450,000 shares in April, at a cost of $8.78 million. In May, as the stock was falling, Mr. Clark's buying seemed to wane. He bought only 25,000 shares, for $311,000. In June, the buys stopped.
Filings for July are not yet available. But at the rate Mr. Clark is buying, it will take roughly five and a half years for him to buy $200 million of stock.
In a phone interview, Mr. Clark offered an explanation for why he didn't buy more Healtheon shares. "I made all the purchases that I was allowed to make under rules of the S.E.C., which restricted me in a way frankly I was not aware of when we first made the announcement," he said. "I was restricted to not be on the bid side and I was only able to respond to offers of stock."
But an S.E.C. spokesman said that while there were restrictions on the sale of shares by insiders, there were no prohibitions when they buy. There is only a so-called safe harbor rule that provides certain conditions which, if met, will make it clear to regulators that an executive is not buying shares to manipulate their price.
Clearly, Mr. Clark was exercising great care not to roil regulators with his purchases. When asked why his buying fell so significantly in May and ceased in June, he said he was simply following the direction of Healtheon's corporate lawyer. "The company told me when I could and when I could not buy stock," he said.
That is surely disappointing news to Healtheon shareholders who bought on Mr. Clark's bullish announcement. The stock has fallen 56 percent since then, closing at $12.875 on Friday.
While Mr. Clark's intentions were undoubtedly good, Robert Gabele, director of insider research at First Call/ Thomson Financial, said it was wise for investors to greet all buyback announcements with a healthy skepticism. "Don't jump to the conclusion at the announcement of a buyback that the stock will actually be purchased," he said. "A lot of times, insiders have emotional attachments to their stock. When things settle down and common sense takes over, the buyback may not get done."
Mr. Clark said he remained a big believer in the company and would have bought more Healtheon shares if he could have. Oddly, then, Healtheon shareholders have only the company to blame for keeping this well-heeled bull out of the market.
But Healtheon should be held accountable for something else. Sure, Wall Street is all about positive spin today, but where was the news release announcing that Mr. Clark's intent to buy $200 million in stock had been stopped, if only temporarily? Crowing about a planned purchase of stock and leaving shareholders in the dark about its hiatus is just plain lame. |
