--Health Management's biggest shareholder wants complete refresh
on board of directors
--Glenview Capital says Health Management has underperformed for
a decade
--Glenview says new board needed to review options
(Adds comment from Health Management in sixth paragaph, updates
share price)
By Jon Kamp
Hedge fund Glenview Capital Management has ratcheted up its push
for change at Health Management Associates Inc. (HMA) by nominating
eight candidates for a total overhaul of the hospital company's
board.
Glenview's growing activist role at Health Management--in which
the investor has amassed a 14.6% stake, making it the largest
shareholder--has fueled Wall Street expectations Health Management
could be sold. Health Management shares were down 1.2% at $15.31 in
recent trading, but they have soared nearly 39% since the company
adopted a shareholder-rights plan in response to Glenview's share
accumulation.
New York-based Glenview has said it has no intentions to acquire
Health Management, and in a long letter to shareholders Tuesday,
admitted that it didn't know whether it's best to sell the company
or "change management and build long-term independent value." But
the investor did call a potential acquisition by a larger chain
"compelling," and said a new board is needed to review such
options.
"Given HMA's history and culture, it is difficult to have
confidence in the current Board conducting an unbiased analysis of
strategic alternatives," Glenview said.
The hedge fund also argued that for over a decade, "despite the
best efforts of well-intentioned individuals at the company,"
Health Management has fallen short in building shareholder value,
managing its finances and maintaining a stable leadership team.
Health Management said it is reviewing Glenview's latest
regulatory filings "and will respond in due course." The Naples,
Fla., company, which runs more than 70 hospitals, recently said it
hired a bank and law firm to help with its review of strategic
options.
The company in late May disclosed that it adopted the rights
plan, also known as a "poison pill," with a 15% trigger, after
Glenview Capital reported an ownership stake nearly that large.
Glenview shortly thereafter asked Health Management to either
remove the poison pill or raise the trigger, and Glenview also
disclosed that it was evaluating a range of measures, including a
potential board changeover.
The shareholder followed through on Tuesday by proposing eight
new board members, including Earl Holland, a former operating chief
at Health Management who retired in 2001. Glenview is not seeking
its own board seat and said nominees are "entirely
independent."
In a regulatory filing, Glenview said Health Management's
charter does not block stockholders from taking this sort of action
by written consent. Glenview will need a majority of shareholders
to agree to switch the board, which could potentially happen within
the coming months depending on how the process plays out.
A spokesperson at Wellington Management--the second-largest
Health Management shareholder, with an 11.4% stake, according to
FactSet Research--could not be reached for comment.
Susquehanna analyst Chris Rigg said following Glenview's board
proposal that he believes Health Management remains a potential
acquisition target and that Community Health Systems Inc. (CYH), a
large hospital operator where Glenview is also the biggest
shareholder, "is the most logical buyer." A spokesperson for
Community Health could not be reached for comment.
The deal speculation comes during a time of consolidation in the
hospital sector, which is dealing with ongoing pressure on patient
volume while looking forward to expanded insurance coverage under
the health-care overhaul law. On Monday, Tenet Healthcare Corp.
(THC) announced plans to acquire Vanguard Health Systems Inc. (VHS)
for $1.73 billion, tying up two other big hospital operators.
Glenview owns big stakes in five big hospital chains, including
Tenet, where it's also the largest shareholder, LifePoint Hospitals
Inc. (LPNT) and HCA Holdings Inc. (HCA).
The shareholder is proposing to replace all nine current Health
Management board members, including Chief Executive Gary Newsome.
Mr. Newsome already plans to retire effective July 31 to take over
a religious mission in South America. Glenview has proposed
retaining a senior management team from Alvarez & Marsal, a
professional services firm, to serve on an interim basis.
The CEO exit and Glenview's push for change come during a time
of government scrutiny for Health Management. The Department of
Health and Human Services and the Department of Justice have been
investigating the company with a focus on issues like physician
referrals and the medical necessity of emergency room tests and
patient admissions, Health Management has said. And the company
recently received a Securities and Exchange Commission subpoena
related to a host of matters, including billing write-downs and
contractual adjustments.
Glenview, which said Health Management "struggles under the
weight" of these probes, has resisted the idea that it's an
activist investor. The firm says as much on a website regarding the
Health Management issues, www.revitalizehma.com. But Glenview said
it was "forced into activity."
--Ben Fox Rubin contributed to this article.
Write to Jon Kamp at jon.kamp@dowjones.com
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