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Healthways' activist investor pushes for more say on operations


By Beth Kutscher
Posted: February 28, 2014 - 7:15 pm ET
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Franklin, Tenn.-based Healthways is under pressure from one of its largest shareholders to add four new members to its board of directors, which would in essence give the shareholder more say in the company's operations.

The company, which partners with providers and insurers to design programs around healthy living and population-health-management initiatives, received notice from hedge fund North Tide Capital that it intends to nominate four candidates at Healthways' annual shareholder meeting.

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North Tide rejected a compromise that would have put forward a slate of five nominees, consisting of two candidates nominated by North Tide, two candidates nominated from Healthways' current board to stand for re-election, and a final candidate that the board would select and North Tide would review.

North Tide, Healthways' second-largest shareholder with a nearly 11% stake as of Dec. 31, signaled its intention in October to take a more activist role in the company. In a letter last month announcing its intention to nominate a slate of directors, North Tide criticized Healthways' “severe underperformance and decline of (its) core health and wellness operations” as well as the board's “blatant laissez-faire attitude toward the need for change.”

“We remain confident that this board has developed the best strategy to move the company forward and continue to build a leadership position in our field,” said John Ballantine, chairman of Healthways' board of directors, in a news release. “We just reported one of the most successful years of business development in the company's history and we are confident that Healthways is on track to grow in all of its current customer markets in 2014.”

Healthways' proposal would have added two members to its board of directors, bringing the total to 12.

It also called for the creation of a strategic review committee—that would include a North Tide representative—to advise the company and the board on a long-term strategy.

Healthways on Feb. 13 reported a net loss of $8.5 million in 2013 on revenue of $663 million, compared with net income of $8 million on revenue of $677 million in 2012.

The next day, it received a resignation letter from board member Thomas Cigarran, the company's co-founder and former CEO.

“Over the last three years, I have tried ... to have the necessary steps taken to improve the company's unacceptable operating and financial performance,” he wrote. “I am no longer willing to continue as a director and watch this company fail to meet its potential and the reasonable expectations of its shareholders.”

Activist investor activity has been heating up in the healthcare services space—which, unlike the pharmaceutical and biotechnology sectors, has generally stayed out of the spotlight.

Hedge fund Glenview Capital Management last year managed to successfully replace the entire board at Health Management Associates in the lead-up to its merger with Community Health Systems, for example.

In addition, Kohlberg Kravis Roberts & Co. is angling to add a director to the board at Amedisys. The home-care and hospice company earlier this week removed its longtime CEO and company founder and has tapped a consulting firm to advise it on its next move.

Follow Beth Kutscher on Twitter: @MHbkutscher


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