Skip to main content

Fight to Replace HMA Board Continues as Buyer Steps Forward

 |  By Margaret@example.com  
   July 31, 2013

Health Management Associates' largest shareholder says it intends to proceed with plans to replace the sitting HMA board, hours after Community Health Systems said it would acquire the embattled hospital chain.

Health Management Associates can't catch a break.

Just hours after Nashville-based Community Health Systems announced an agreement to acquire the Naples, FL-based HMA, Glenview Capital Management, Health Management Associates' largest shareholder, announced its intention to "move forward" with its effort to replace the sitting HMA board through a stockholder vote.

The vote, say some industry analysts, would amount to a "shadow vote" on the CHS acquisition.

This latest move by Glenview caps several months of upheaval for 71-hospital HMA, including an ongoing federal investigation, the adoption of a "poison pill" to ward off an unwanted takeover, and the unexpected retirement of its CEO. Yesterday HMA announced that John M. Starcher Jr., HMA's eastern group president, will serve as interim president and CEO effective Aug. 1.

HMA badly needs the acquisition. "It needs to do something, whether that's merging with CHS or replacing the board" states Frank Morgan, a healthcare services analyst with RBC Capital in Nashville. "It basically doesn't have a CEO; there's no heir apparent, and it's facing deterioration in its EBIDA."

Glenview, a New York City-based hedge fund which owns 14.6% of HMA stock, has been an active critic of the hospital system's board. In an SEC filing earlier this month calling for the election of a new HMA board, Glenview referred to the sitting board as "insular" and without a "path toward continuous improvement and growth."

The filing also noted that "the misalignment of Board and shareholder priorities has led to the misapplication and poor construction of management incentives, a myopic focus on acquisitions to the exclusion of higher returning share repurchase alternatives, and a failure to attract strong stable senior management."

Glenview has nominated a new board, collectively called the "Fresh Alternative" and characterized as "highly qualified and independent," and filed the necessary written consent to give HMA shareholders of record as of July 18 until Sept. 18 to vote for the board nominees.

It keeps stockholders up to date on its efforts through its Revitalize HMA website.

In a press statement confirming that it will continue to call for a new HMA board, Glenview officials noted that over the course of several announcements on Tuesday HMA confirmed lower-than-expected earnings and the receipt of four additional subpoenas from the Office of the Inspector General at the Department of Health and Human Services as part of an ongoing investigation into HMA's patient admission practices.

"HMA lacks the financial acumen to deliver on its projections," according to the press statement, which also ties HMA's legal and regulatory challenges "to a lack of focus at the board level on quality and compliance."

In light of the acquisition announcement, there was some thought that Glenview, which holds stock in both of the for-profit hospital systems––14.6% of HMA stock and 9.6% of CHS stock—might step back and "take a bird in the hand," says CRT Capital Group analyst Sheryl Skolnick. The $3.9 billion deal calls for HMA stockholders to receive $13.78 per share.

By moving forward with its original plans, Skolnick says Glenview is "keeping its options open." If it is successful in getting a new board elected, then Glenview could press shareholders to reject the CHS offer in favor of letting the new board negotiate for what could be a better deal. In its press statement, Glenview officials say the CHS proposal "establishes an important floor value" for HMA shareholders to evaluate.

"As the sitting board has entered into a sale agreement concurrent with management vacancy, disappointing results, and a reduced outlook, it is difficult to assess whether the value offered… represents full and fair value or the price offered by an opportunistic acquirer to a distressed seller."

In addition, continuing its efforts to put a new board in place, Glenview wants to bring in Alvarez & Marsel, a consulting firm which specializes in turnaround and interim management, performance improvement, and business advisory services.

A&M would be tasked with strengthening the floor value of the CHS proposal, identifying areas of operational compliance and financial improvement, enhancing current regulatory and compliance efforts, providing long-term financial forecasts, and investigating and presenting alternative proposals to the CHS acquisition.

CHS declined comment on the Glenview action.

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
Twitter

Tagged Under:


Get the latest on healthcare leadership in your inbox.