Just three years ago, billionaire hedge fund manager Larry Robbins fought tooth and nail for Community Health Systems' $7.6 billion takeover of Health Management Associates. Now he has lost faith in that massive hospital deal—and in the healthcare sector more broadly.
Glenview Capital Management, Robbins' New York City-based hedge fund, sold off all 11.59 million shares of CHS during the first quarter of this year, according to a regulatory filing posted Monday. Glenview also ditched all 1.21 million shares of Universal Health Services, another hospital chain that operates dozens of acute-care and behavioral facilities.
Glenview's stock retreat didn't end with CHS and UHS. The hedge fund, known for its high returns and emphasis on healthcare, lowered ownership stakes in 11 of 16 healthcare companies in the first quarter, according to the filing. That included Aetna, Anthem, Cigna Corp. and Humana—all of which are fighting to gain federal and state approval for their respective mergers.
Aetna is buying Humana in a deal valued at $37 billion, and Anthem's acquisition of Cigna is worth $53 billion, including debt. The withdrawal from those insurer stocks by one of the most powerful healthcare-focused hedge fund managers could signal anxiety those deals won't get the green light.
The only healthcare companies in which Glenview increased ownership or kept its stakes the same were pharmaceutical giant AbbVie, hospital chains HCA and Tenet Healthcare Corp., inpatient rehab operator HealthSouth Corp. and post-acute care provider Kindred Healthcare. Glenview recently took over two Tenet board seats.
Robbins and other Glenview managers did not immediately respond to an interview request. Yet the mass exits from CHS and UHS, as well as the reduced stakes in other healthcare companies, has “the smell of a panic-type of move,” said William Meade, co-founder of investor consulting firm Billionaire's Portfolio. Meade also used to work at a hedge fund.
“This really looks like a risk-management decision,” Meade said. “Robbins basically went through his book and tried to minimize risk.”
Robbins has been known for his shareholder activism and his long bets on the Affordable Care Act, buying up healthcare stocks during 2011 and 2012 right before millions more Americans gained health insurance. The ACA meant more insured customers for hospitals and more paying members for private insurers, the thinking went.
The latest figures from the National Health Interview Survey show 9.1% of Americans were uninsured in 2015, the lowest percentage ever recorded. Almost 29 million people remain uninsured.
But healthcare stocks have contracted quite a bit in the past year after a couple years of significant growth. Indeed, Glenview's funds were hammered in the latter half of 2015 and the opening stages of this year, when CHS and other healthcare stocks took a turn for the worse. Robbins wrote a letter to investors last year apologizing for the losses and vowing to return to profitability.
“I've failed to protect your capital, and mine … despite a flat market,” Robbins wrote this past October, according to CNBC.
Glenview first bought into CHS in 2012, and since 2014, Glenview consistently owned more than 12 million shares of CHS. But the hospital company's stock has taken a beating after what many analysts have considered a disastrous integration of HMA's hospitals. Glenview previously overhauled HMA's board and top executives.
CHS' stock price was $40.48 on Jan. 27, 2014, the date CHS completed the HMA transaction. Its price skyrocketed past $64 a share in 2015 but opened this week at less than $13 a share, a roller coaster ride that has led to heavy losses for shareholders like Glenview.
“It's not like (Robbins) to sell his losers,” Meade said. “But to be honest, he hasn't had a lot of winners in his portfolio in the past year.”
CHS plans to divest many of its struggling hospitals, and it will use the proceeds of its spinoff Quorum Health Corp. to pay down debt. Meade added that Robbins and Glenview likely see more upside in Tenet and HCA than CHS, although that doesn't preclude Glenview from buying back in while the stock remains depressed. Robbins has actually gobbled up Tenet stock feverishly in the past year despite Tenet's poor stock performance and low earnings.
Despite Glenview's sell-off, CHS' stock actually traded up 10% in Tuesday morning training but moderated in the afternoon to a 4% increase. CHS, headquartered in Franklin, Tenn., held its annual shareholder meeting Tuesday in New York.
The other major question surrounding Glenview's latest filing is how Robbins views the pending insurance mega-mergers. Robbins sold 22% of the hedge fund's shares in Humana, 15% of Anthem, 12% of Cigna and 9% of Aetna. Glenview still has more than $3.1 billion tied up in those four insurers, but the declining stakes raises questions of whether Robbins believes the U.S. Justice Department will put the kibosh on the deals.
Various Wall Street analysts have pegged a 60% to 80% probability the two insurance deals will be approved, along with divestitures. But in the event those deals are rejected, stocks of those insurers likely would fall or remain volatile, which would hurt hedge funds and investment firms with large stakes.
“Because of the current environment—there's been so many failed mergers lately—I just have to believe he's not really optimistic that these mergers will occur,” Meade said.
