TeamHealth, the giant physician-staffing company, has acquiesced to demands by activist investor Jana Partners for three seats on the TeamHealth board of directors.
In exchange, New York City-based Jana agreed to not launch an unfriendly bid for TeamHealth or combine its current 8% stake in TeamHealth with a third party eyeing control of the company, according to a financial regulatory filing yesterday. The pledge is known as a “stand-still” agreement.
Under the deal with Jana, TeamHealth immediately expanded its formerly 10-member board by two seats and filled them with representatives of the hedge fund. The new independent board members are Edwin Crawford, the former chairman of CVS Caremark, and Jana partner Scott Ostfeld.
Also, TeamHealth agreed next year to bring onto its board Jana ally Nancy Schlichting, the retiring CEO of the Henry Ford Health System in Detroit.
Schlichting, who this year is being succeeded at Henry Ford Health by Wright Lassiter, joined Jana last month in launching its effort for the TeamHealth seats. The investors argued that TeamHealth's stock was undervalued because of strategic missteps by management and the board.
"We appreciate TeamHealth's constructive approach in reaching this agreement," said Barry Rosenstein, founder and Managing Partner of Jana, in a news release. "We look forward to working with management and the board of directors to pursue our shared goal of enhancing value for all TeamHealth shareholders."
To enhance Jana's influence in governance and bring the board back to its 10-member structure, TeamHealth said in the filing that it would reduce the size of the board by one member in each of the next three years beginning at the 2016 annual shareholder meeting scheduled for May 27.
TeamHealth also pledged to replace Dr. Lynn Massingale, 63, as chairman of the board in 2018 with a candidate agreeable to Jana.
Knoxville-based TeamHealth is one of the nation's largest providers of physician staffing services to hospital emergency rooms and other departments. The company posted revenue of $3.56 billion in 2015.
TeamHealth has struggled with earnings and its stock price since rejecting a $7.8 billion buyout offer from rival Amsurg in October. That offer promised a premium on TeamHealth's $62 per share stock price at the time. TeamHealth's stock price Wednesday closed at $42.18 per share.
Instead, TeamHealth management has had its hands full with the $1.6 billion November acquisition of IPC, a leading provider of physician services in post-acute settings.
IPC's profit margins are running about 7%, less than the 11% that TeamHealth has carried, TeamHealth CEO Mike Snow told analysts during an earnings call in February.
In the fourth quarter, TeamHealth's earnings swung to a net loss. TeamHealth posted a quarterly net loss of $9.7 million, or 13 cents per share, compared with net income of $16.1 million, or 22 cents, in the year-earlier fourth quarter.
TeamHealth earned $45.2 million, or 61 cents, in the 2015 fourth quarter excluding one-time charges of $49.1 million for transaction and integration costs of the IPC acquisition and other smaller items.
In a note to investors last week, J.P. Morgan downgraded TeamHealth's stock from overweight to neutral after the price had run up to more than $43 a share from about $33 before the Jana announcement.
The research note said the premium was presumably based on investor speculation that the Jana plan might rekindle merger talks between TeamHealth and rival Amsurg.
An earlier version of this story incorrectly stated that TeamHealth Chairman Dr. Lynn Massingale would be replaced as chairman in 2017. He is leaving the post in 2018.
