Glenview Capital Management LLC today proposed ousting the board and management of hospital operator Health Management Associates Inc. (HMA:US), criticizing the leadership’s “substandard strategic and financial approach.”
Glenview, which owns about 15 percent of Health Management, nominated eight directors and urged that outside consultants Alvarez & Marsal Inc. be hired to serve as interim managers, the New York-based hedge fund said in a statement. Earlier, the money manager suggested the hospital chain ease its poison pill defenses against a hostile takeover.
Health Management, which has hired Morgan Stanley (MS:US) and Weil, Gotshal & Manges LLP to review strategic alternatives, is seeking a chief executive officer to replace Gary Newsome, who said on May 28 he would leave. That’s spurred speculation the company, which runs 71 hospitals, may be bought as the industry faces pressure to consolidate under the 2010 health-care law.
“There is significant room for improvement at HMA,” Glenview said in the statement, referring to Health Management by its stock ticker. “For over a decade, despite the best efforts of well-intentioned individuals at the company, HMA has fallen short in their financial returns delivered to shareholders, their financial management and focus, our shared aspirational goals on regulatory compliance and the pursuit of a stable and effective leadership team.”
Health Management declined less than 1 percent to $15.40 at the close in New York. The Naples, Florida-based hospital chain has advanced (HMA:US) 39 percent since May 24, when it announced steps to prevent an unwanted takeover.
Hospital operators are gearing up for an influx of new customers in 2014, along with cuts to Medicare funding, under President Barack Obama’s Affordable Care Act. Yesterday, Dallas-based Tenet Healthcare Corp. agreed to buy hospital chain Vanguard Health Systems Inc. for about $1.8 billion as it seeks to grow in new markets.
Glenview hasn’t recommended a sale in its conversations with Health Management’s leaders, the money manager said in an open letter to shareholders made public today. The investor doesn’t have a position on whether selling the business would be a better move than simply changing management, the fund said in its letter.
Other hedge funds, including Jana Partners LLC, have acquired stakes (HMA:US) in Health Management since Glenview’s holdings were disclosed, according to a person familiar with the trading who asked not to be identified because the holdings are not yet public. Jana, which now owns more than 5 percent, supports Glenview’s proposals, the person said.
Health Management, the fifth-largest hospital operator by market value, had a capitalization of $3.98 billion as of the close of New York trading yesterday.
“Glenview is taking the right approach,” Sheryl Skolnick, an analyst at Stamford, Connecticut-based CRT Capital Group LLC, said in an interview. “They’re better stewards of shareholders interest, but also patient and employee interests as well, than HMA management today.”
Pushing to sell the company wouldn’t make sense because it has underperformed, Skolnick said. “You don’t know if potential buyers will come in and do due diligence and run away in fear and loathing,” she said.
HMA spokesman Eric Waller declined to comment in a telephone interview.
Health Management said in a June 12 statement that it had hired advisers to help it consider “strategic alternatives and opportunities” in connection with share purchases made by Glenview. It also formed a committee to find a replacement for Newsome, who is leaving after five years at the helm.
“We continue to believe that HMA remains a potential acquisition target,” Chris Rigg, a Susquehanna Financial Group analyst in New York, today told clients in a research note, with “the most logical buyer” being Community Health Systems Inc. (CYH:US), the Franklin, Tennessee-based hospital company.
At a May 30 investor conference, Community Health’s chief financial officer, W. Larry Cash, said the company is open to a “friendly” merger to tap the potential business from the health-care law.
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