The point (is) to bring more information to the general public on who owns the shares of these companies, Poppitt says. Institutions and individuals with more than $100 million in public holdings are subject to the rule. Individuals can request a confidential treatment ruling from the SEC if the holdings are personal rather than investments that are being managed for others, Poppitt says. The filings take their name from the rule: 13F-HR.
Data were collected on the institutional holders of two companiesCommunity, Franklin, Tenn., and Tenet Healthcare Corp., Dallasfrom 364 13F-HR filings for the quarter ended Dec. 31, 2006. As of that date, 112 institutional investors owned stakes in both companies and 252 others owned stakes in one of the companies but not both. Only stock holdings were analyzed.
Many of the institutions held stock in some or all of the four other large, publicly traded hospital chains: Health Management Associates, Naples, Fla.; LifePoint Hospitals, Brentwood, Tenn.; Universal Health Services, King of Prussia, Pa.; and Triad. Many of the reports also showed holdings in health insurers such as Aetna and Cigna Corp., and other healthcare companies such as Psychiatric Solutions and Cardinal Health.
Institutional investors own nearly all of the stock of both companies. The 251 institutions identified as holding Community Health Systems stock own 97.2% of the companys shares. In Tenets case, 226 institutions own 99.2% of the company.
One explanation for the slight difference is the share of the company owned by directors and executives. The data are a year old, but the 2006 proxy statements for both companies give some sense of the difference. Communitys directors and executives owned 1.4% of the company as of March 31, 2006, once unexercised options are excluded, according to its proxy statement.
Tenets directors and executives owned about 0.2% of the company as of March 20, 2006, according to its proxy statement. Unlike Community, Tenet has had significant turnover among executives since 2002, so they have built up less equity in Tenet than have Wayne Smith and W. Larry Cash, Communitys long-serving chairman, president and chief executive officer, and its executive vice president and chief financial officer, respectively.
The analysis of the 13F-HRs shows that Tenets stock ownership is significantly more concentrated than that of Community. Tenets top 10 institutional investors hold 73% of the companys stock, while the top 10 holders of Community own just 45.4% of that company. (See charts, p. 36 and at left.) Put another way: The four largest holders of Tenet stock own a majority of the companys stock, 53.1%, so they could conceivably control the company should they decide to collaborate. It would take collaboration between the top 12 holders of Community, with 51% of the companys stock, to control that company.
The institutions that own the shares of Community and Tenet run the gamut of institutional investors. They include public sector pension funds, such as the California Public Employees Retirement System and similar funds from Colorado, New York, Ohio and Texas and the Canadian province of Ontario. They include insurers, such as Metropolitan Life Insurance Co. and American Family Mutual Insurance Co. Household-name nonfinance companies such as BP, General Electric Co. and Intel Corp.which you might not expect to directly own stockare represented, too. Among the investor ranks are also giant investment banks, such as Citigroup, Deutsche Bank and Morgan Stanley.
Gary Gus Gerulskis, president of Capital Advisors, an investment advisory in Framingham, Mass., says there are a lot of reasons why investment managers would be interested in Community and Tenet shares. Managers who look for growth stocks could be betting on the healthcare sector in general because healthcare spending is rising, Gerulskis says. Managers who look for value stocks could believe that the shares of both companies are trading at a cheap multiple of earnings, especially Tenet, he adds. Historically, Community and Tenet shares have not had a strong correlation with broader market trends, so investment managers may have bought these shares to lower the risk of their overall portfolio, Gerulskis says.
Buyers of Community shares may be betting on the company to continue its positive momentum, Gerulskis says. Investors will no longer give a stock two, three or four years to show what it can do, he says. They prefer to try to catch a coming wave so to speak. Tenet holders, on the other hand, could be longer-term investors who have bought additional shares as the price dropped, lowering the average cost of their investment in the company, he says. This practice is known as dollar-cost averaging.