The large investor that Tenet Healthcare Corp. made a temporary peace treaty with this week has a well-earned reputation for activism in hospital companies.
Billionaire Larry Robbins and his Glenview Capital Management own large equity stakes in Community Health Systems, HCA and Tenet. The New York City-based hedge fund was instrumental in the overhaul and eventual sale of the hospital chain Health Management Associates, which was absorbed by CHS.
Glenview also owns significant shares of health insurers Cigna Corp. and Humana—both of which are in the process of being acquired in multibillion-dollar deals—as well as several pharmaceutical companies, giving the “suggestivist” firm a clear interest in the success of the healthcare industry. The market value of Glenview's holdings was more than $20 billion as of Sept. 30, according to regulatory disclosures.
“Our culture at Glenview is to analyze the facts in front of us, and to try to remove emotion or bias from the equation,” Glenview said in a June 2013 letter to HMA shareholders. “In Hollywood terms, we are more Mr. Spock than William Wallace. We were not born to lead fights, but we are simply programmed to follow the logic trail and act accordingly.”
Robbins persuaded Tenet CEO Trevor Fetter and the company's board of directors this week to create two new board seats for Glenview representatives in exchange for a “stand-still” pledge not to participate in any shareholder proxy that would disrupt the finances and control of the company.
The two sides claim the actions are friendly. The board representatives that Glenview selected, Randy Simpson and Matthew Ripperger, are Glenview partners who are co-leaders of the hedge fund's healthcare practice, according to a joint news release this week. Simpson previously worked on mergers and acquisitions at Credit Suisse before joining Glenview in 2005.
Fetter said he welcomed the help from Glenview, which owns 17.9 million common shares of Tenet, or nearly 18% of the outstanding stock.
But Tenet is struggling with losses, a depressed stock price and negotiations with the government that could exceed $20 million to settle allegations that Tenet hospitals in Georgia and South Carolina paid kickbacks to get maternity referrals to its hospitals. Tenet's stock has fallen roughly 60% since last July.
Enter Robbins, who previously has shown limited patience with turnaround efforts at the hospital companies in which he invests.
Glenview single-handedly changed the course for Health Management Associates, the troubled for-profit hospital chain that faced steep losses and federal probes into questionable emergency room practices. Glenview took over HMA's board in 2013 by appointing its own directors, the culmination of a fight that involved HMA filing a “poison pill” to prevent Glenview from initiating a hostile takeover.
The public war of words between Glenview and HMA only intensified over the final months of 2013. Glenview ripped into HMA's executives, saying they had a “consistent track record of underperformance” and that they “failed to establish credibility.” HMA CEO Gary Newsome and CFO Kelly Curry both ultimately left the company before it was acquired by CHS in a deal valued at $7.6 billion.
This week's agreement between Tenet and Glenview suggests Tenet did not want to meander down the messy path taken by HMA. Both of Tenet's new Glenview board members will resign from their roles if Glenview lowers its ownership to 5% of the company, according to the two groups' agreement this week. Only Ripperger will resign if Glenview drops ownership of Tenet to 10%.
In 2015, Wayne Smith, CEO of CHS called Glenview's role in the sale of HMA "the (activist investor) success of the century.”
Smith spoke at a Nashville Health Care Council panel discussing the trend of activist investors in healthcare. The industry would attract more of these investors because dynamic changes such as healthcare reform often create opportunity for "strategy and leadership shifts," said A.J. Rice, an equity analyst at investment bank UBS.
Darren Lehrich, managing director at Deutsche Bank said at the same panel that 73% of activists were successful in adding their representatives to boards. He added that there was $115 billion in assets under management with activist-style investors.
Glenview and its affiliated funds have more than $10 billion under management.