Faced with slumping earnings and a depressed stock price, Tenet Healthcare Corp. agreed Tuesday to give two newly created board seats to its largest shareholder for a “stand-still” pledge to not challenge the board or management at the upcoming annual meeting.
Under the deal, according to documents filed with the U.S. Securities and Exchange Commission, Tenet increased the size of its board of directors, now 12, to accommodate two appointments from Glenview Capital Management, Tenet's largest shareholder with nearly an 18% equity stake in the hospital giant.
Glenview designated Matthew Ripperger and Randy Simpson for the seats. The executives, both partners in Glenview, immediately joined Tenet's board and will be included on a slate that all Tenet shareholders will vote on at the company's upcoming annual meeting, the documents show.
In a news release, Tenet CEO Trevor Fetter said Simpson and Ripperger have healthcare expertise that the company aims to use to increase shareholder value.
“Glenview has been a substantial investor in our company for nearly four years and we have appreciated their collaborative approach and constructive input,” Fetter said.
A Glenview spokesman said the company would not comment beyond the filings.
By next year's annual meeting, Glenview may be in the position to pick two additional board members if it adheres to the agreement, according to the documents.
For its part, Glenview agreed this year and next not to participate in any shareholder proxy that would disrupt the finances and control of the company.
Specifically, the agreement precludes Glenview from nominating any person for election at the next two annual meetings or “submit any proposal for consideration at, or bring any other business before, the 2016 Annual Meeting or the 2017 Annual Meeting, directly or indirectly.”
Glenview is a New York City-based hedge fund with $10 billion under management. It owns 17.9 million common shares of Dallas-based Tenet.
On Oct. 22, Glenview purchased 500,000 shares at about $30 per share on average, according to SEC documents. It bought another 900,000 shares between Nov. 11 and Nov. 13 for a little more than $32 a share on average, the documents show.
Tenet has been dealing with a plethora of problems since midyear, with the healthcare chain's stock plunging from $60.78 per share on July 14, to $23.08 on Jan. 15.
In its fiscal third quarter ended Sept. 30, Tenet's earnings swung to a net loss of $29 million. The company badly missed analyst targets. It blamed flattening patient volumes from Medicaid and insurance exchange sign-ups.
Tenet also is highly leveraged from a debt-funded acquisitions strategy that included the blockbuster purchase last year of Aspen Healthcare . It now has 84 hospitals and posted net operating revenue of $13.6 billion through the nine months ended Sept. 30.
Then last week, Tenet announced that it is in settlement talks with the government over allegations that four of its hospitals in Georgia and South Carolina paid kickbacks for maternity referrals.
Tenet had already set aside $20 million to go toward a potential settlement of the matter—but that amount may not cover the final cost, according to another SEC filing.
Tenet said that the liabilities could exceed the reserve they established and could have a material adverse effect on their business, financial condition or cash flows.
Tenet's stock price today rose 93 cents, or 4%, to close at $24.01.