Tenet Healthcare Corp. Chairman and Chief Executive Officer Jeffrey C. Barbakow declared at the company's annual meeting last week that its post-merger restructuring was completed.
The end result? According to Barbakow, a crisper balance sheet, a better corporate image and a stronger dealmaking position for the Santa Barbara, Calif.-based hospital operator.
Almost immediately after the close of the March 1995 deal that formed Tenet-the merger of American Medical International and National Medical Enterprises-Tenet management launched a series of asset sales, corporate retoolings and financings.
"Before we embarked on this program, much of the strength of our balance sheet was locked up in noncore assets," Barbakow said at the shareholders' meeting in Santa Barbara. "Our challenge was to realize the best value for those assets."
Among the transactions Barbakow cited were the sell-off of all hospitals outside the United States; $320 million raised from the sale of subordinated notes, which were then exchanged for some of Tenet's 8.3 million share stake in long-term acute hospital operator Vencor; reorganization of its credit line; and $60 million in savings through job cuts and renegotiations with vendors.
"All told, this program generated almost $1 billion, which was used to repay debt and to give us the flexibility to pursue important opportunities," Barbakow said.
He said Tenet's stronger financial position helped in its acquisition of five hospitals in the Southeast since July 1995. Three other deals are pending in Alabama, California and Florida.
But at the same time, Barbakow insisted Tenet's expanding national presence has not clouded its aim of keeping healthcare a local matter. He told shareholders that commercials being aired regionally are helping Tenet convey that image.
Differentiation from competitors "can make the difference between success and failure of forming partnerships. This is especially true in our overtures to not-for-profit hospitals. They are always concerned about finding partners who will respect and continue their healthcare mission," he said.
But when a shareholder asked about realizing profits by acquiring not-for-profit institutions, Barbakow didn't hesitate to put his own spin on the matter. "The term `not-for-profit' is pretty confusing. It really is a misnomer. It means they are nontax-paying, but they do, however, make money," he said.
Tenet reported a 23% rise in net income for its first quarter ended Aug. 31, to $72.4 million, or 33 cents per share, from $58.9 million, or 28 cents per share, in the year-ago quarter. The year-ago figure excludes a one-time $59.4 million after-tax gain from the sales of two hospitals. Revenues for the quarter grew 12% to $1.4 billion. The numbers were in line with analysts' estimates.
Tenet's outpatient visits increased more than 20% in the quarter to 1.54 million from 1.28 million, while average length of inpatient stay decreased to 5.4 days from 5.6. A spokeswoman said both trends are expected to continue. Total inpatient revenues increased 9% to $858.2 million. Outpatient revenues rose 12.4% to $410.5 million.