Skip to main content
Subscribe
  • Sign Up Free
  • Login
  • Subscribe
  • News
    • Current News
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • Digital Health
    • Transformation
    • ESG
    • People
    • Regional News
    • Digital Edition (Web Version)
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Midwest
    • Northeast
    • South
    • West
  • Blogs
    • AI
    • Deals
    • Layoff Tracker
    • HIMSS 2023
  • Opinion
    • Breaking Bias
    • Commentaries
    • Letters
    • From the Editor
  • Events & Awards
    • Awards
    • Conferences
    • Galas
    • Virtual Briefings
    • Webinars
    • Nominate/Eligibility
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Excellence in Governance
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top Innovators
    • Diversity in Healthcare
      • - Luminaries
      • - Top 25 Diversity Leaders
      • - Leaders to Watch
    • Women in Healthcare
      • - Luminaries
      • - Top 25 Women Leaders
      • - Women to Watch
    • Digital Health Transformation Summit
    • ESG: The Implementation Imperative Summit
    • Leadership Symposium
    • Social Determinants of Health Symposium
    • Women Leaders in Healthcare Conference
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Diversity Leaders Gala
    • Top 25 Women Leaders Gala
    • - Hospital of the Future
    • - Value Based Care
    • - Hospital at Home
    • - Workplace of the Future
    • - AI and Digital Health
    • - Future of Staffing
    • - Hospital of the Future (Fall)
  • Multimedia
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Sponsored Video Series - One on One
    • Sponsored Video Series - Checking In with Dan Peres
  • Data & Insights
    • Data & Insights Home
    • Hospital Financials
    • Staffing & Compensation
    • Quality & Safety
    • Mergers & Acquisitions
    • Data Archive
    • Resource Guide: By the Numbers
    • Surveys
    • Data Points
  • Newsletters
  • MORE+
    • Contact Us
    • Advertise
    • Media Kit
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Providers
September 06, 2017 12:00 AM

Tenet selling 8 more hospitals as investors debate company breakup

Dave Barkholz
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Kris Tripplaar/Sipa USA
    Tenet's board of directors faces major obstacles to either selling the company outright or selling off its three main business unit in big blocks.

    Tenet Healthcare Corp. expects to sell eight low-margin hospitals and its nine hospitals and clinics in the United Kingdom to reduce debt and focus on healthier operations, outgoing CEO Trevor Fetter said at an analyst conference Wednesday.

    The facilities, which represent about $1.8 billion in annual revenue, are expected to yield between $900 million and $1 billion in net proceeds and through lease cost reductions, Fetter told the Baird 2017 Global Healthcare Conference.

    Fetter also noted investors are arguing for or against breaking up Tenet around its three main business lines—hospitals, ambulatory surgery centers and revenue-cycle software—or leaving the company whole except for occasional hospital divestitures.

    Weighing whether synergies of operating Tenet whole are greater than the breakup value of the company is giving rise to "a lively debate that will and should take place on that question," Fetter said.

    He made the comments in light of activist investors pressuring the company for turnaround changes led by Glenview Capital Management.

    The eight additional U.S. hospitals being sold include two in Philadelphia that Tenet announced last week it was selling to Paladin Healthcare for $170 million.

    Though Fetter previously said Tenet would divest additional hospitals beyond three in Houston recently sold to HCA, this is the first time he has said how many.

    Fetter announced last week that he is stepping down as Tenet's CEO by March or sooner, depending on when his successor is named.

    He came under pressure after hedge fund Glenview Capital Management, which owns 18% of Tenet's common shares, resigned board seats to fight for turnaround changes outside of the company.

    Fetter noted that the hospitals it is selling in Philadelphia—Hahnemann University Hospital and St. Christopher's Hospital for Children—are losing money.

    And he admitted to Baird analysts that the $100 million Tenet invested in the market for a new hospital tower was a mistake given the way the market changed there in the six years it took from conception to completion.

    Of the facilities being divested, they have a paltry margin of 4% combined on earnings before interest, taxes, depreciation and amortization.

    Fetter reiterated that the divestitures would not only raise money to reduce debt, but allow Tenet to focus future capital and management resources in hospital markets where it has first- and second-place market share.

    Tenet recently finished several big hospital construction projects, including in Detroit and El Paso and San Antonio, Texas.

    Dallas-based Tenet is the nation's third-largest investor-owned hospital chain with 77 hospitals.

    Of the $900 million to $1 billion that Tenet hopes to fetch from additional hospital divestitures, about $600 million to $700 million would be from cash proceeds, Fetter said. The company would also benefit from the buyers assuming $280 million in annual leases, Fetter said.

    Those sales would allow Tenet to reduce its outsized $15 billion debt load to 5.9 times EBITDA vs. the 6.3 times it stands at today.

    Meantime, Tenet plans to continue using cash to increase its ownership in United Surgical Partners International from 80% today to 95% by mid-2019, Fetter said.

    USPI, one the nation's largest ambulatory surgery center chains, is growing as insurers shift patients wherever possible from hospital settings to outpatient facilities, Fetter said. Tenet bought a majority stake of USPI in 2015.

    The sum of the three parts of Tenet is worth about $24 per share, Jefferies & Co. healthcare analyst Brian Tanquilut said last week.

    That's considerably more than the $17.69 closing price of Tenet shares Tuesday.

    But unlocking that value will be difficult, he said.

    For example, the sale of Conifer—which relies on Tenet hospitals and a few other large customers for most of its revenue—would likely fetch just $1 billion in net proceeds that could be used to pay down debt, Tanquilut said.

    Mizuho Securities analyst Sheryl Skolnick calls USPI the crown jewel of Tenet. Yet, even if it was sold at a high 12 times USPI's annual earnings before interest, taxes, depreciation and amortization, that would leave about $2 billion for debt reduction.

    To get that 15% reduction in debt, Tenet would be giving up a division that generates about 21% of EBITDA, Skolnick said.

    That leaves individual hospital sales—and the hard daily grind of improving hospital operations—as the best way for the next CEO to unlock value for hedge fund Glenview and other investors, she said.

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    Walgreens main sign clinic
    Walgreens continues its big bet on healthcare, VillageMD clinics
    23 leadership panel
    Payer mix changes threaten health systems’ viability, CEOs say
    Most Popular
    1
    CMS tries luring providers to revamped Medicare ACOs
    2
    Oregon joins other states in setting ratios for nurse staffing
    3
    Blue Shield CA taps Amazon, Mark Cuban, CVS for new PBM model
    4
    A health innovation hub grows in Lake Nona Medical City
    5
    Hospital-at-home providers push for Medicaid coverage
    Sponsored Content
    Modern Healthcare A.M. Newsletter: Sign up to receive a comprehensive weekday morning newsletter designed for busy healthcare executives who need the latest and most important healthcare news and analysis.
    Get Newsletters

    Sign up for enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today
    MH Magazine Cover

    MH magazine offers content that sheds light on healthcare leaders’ complex choices and touch points—from strategy, governance, leadership development and finance to operations, clinical care, and marketing.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS

    Our Mission

    Modern Healthcare empowers industry leaders to succeed by providing unbiased reporting of the news, insights, analysis and data.

    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Help Center
    • Advertise with Us
    • Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • News
      • Current News
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • Digital Health
      • Transformation
        • Patients
        • Operations
        • Care Delivery
        • Payment
      • ESG
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition (Web Version)
    • Blogs
      • AI
      • Deals
      • Layoff Tracker
      • HIMSS 2023
    • Opinion
      • Breaking Bias
      • Commentaries
      • Letters
      • From the Editor
    • Events & Awards
      • Awards
        • Nominate/Eligibility
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Excellence in Governance
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top Innovators
        • Diversity in Healthcare
          • - Luminaries
          • - Top 25 Diversity Leaders
          • - Leaders to Watch
        • Women in Healthcare
          • - Luminaries
          • - Top 25 Women Leaders
          • - Women to Watch
      • Conferences
        • Digital Health Transformation Summit
        • ESG: The Implementation Imperative Summit
        • Leadership Symposium
        • Social Determinants of Health Symposium
        • Women Leaders in Healthcare Conference
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Diversity Leaders Gala
        • Top 25 Women Leaders Gala
      • Virtual Briefings
        • - Hospital of the Future
        • - Value Based Care
        • - Hospital at Home
        • - Workplace of the Future
        • - AI and Digital Health
        • - Future of Staffing
        • - Hospital of the Future (Fall)
      • Webinars
    • Multimedia
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Sponsored Video Series - One on One
      • Sponsored Video Series - Checking In with Dan Peres
    • Data & Insights
      • Data & Insights Home
      • Hospital Financials
      • Staffing & Compensation
      • Quality & Safety
      • Mergers & Acquisitions
      • Data Archive
      • Resource Guide: By the Numbers
      • Surveys
      • Data Points
    • Newsletters
    • MORE+
      • Contact Us
      • Advertise
      • Media Kit
      • Jobs
      • People on the Move
      • Reprints & Licensing