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HMA Board Ousted by Glenview Capital

 |  By Margaret@example.com  
   August 13, 2013

In a move seen as a "shadow vote" on the recently announced merger between Health Management Associates and Community Health Systems, HMA's largest shareholder has pushed out the sitting board and replaced it.

Glenview Capital Management, a New York City-based hedge fund, has unseated the board of Health Management Associates.

Late Monday afternoon Glenview Capital announced that it had submitted to the "appropriate representatives of HMA" documentation confirming that a majority of HMA stockholders had voted to remove all of the current HMA board members and replace them with a Glenview-backed board.

The action is considered by some observers as a "shadow vote" on the recently announced merger between HMA and the Nashville-based Community Health Systems, which would create the largest for-profit hospital system in the U.S. For its part CHS released this statement: "Our definitive agreement to acquire HMA remains unchanged. We look forward to working constructively with the new board of directors at HMA to complete this strategic transaction."

In a statement issued late Monday, HMA said "The HMA board is committed to ensuring an orderly transition if the written consents delivered by Glenview are validated by the independent inspector of election.

Glenview, HMA's largest shareholder, with 14.6% of the stock, has been a strong critic of the merger. In a press statement commenting on the merger the firm said the $7.6 billion 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."

The board succession is expected to take place this week. Steven Shulman will be the new chair. Shulman, currently a senior advisor at a private equity firm, is a former chair and CEO of Magellan Health Services, Inc. where he is credited with spearheading a turnaround and restructuring following bankruptcy.

The shareholder vote is considered a "very rare event" according to CRT Capital Group analyst Sheryl Skolnick. "Shareholders typically don't take action on their own behalf," but in this instance "they drew a line in the sand and said 'we're taking control of our company.'"

"I'm not surprised by the vote, though. I think HMA has worked hard to make sure shareholders voted against the sitting board," Skolnick said in a telephone interview.

She noted that any shareholder who might wonder if they did the right thing need only read the SEC form 8-K filing made on Monday by HMA. In it the board announced the adoption on Aug. 6 of a retention bonus and severance plan, commonly known as golden parachutes, for "certain members of key management," including Kelly E. Curry, executive vice president and CFO; Robert E. Farnham, senior vice president-finance; and Steven E. Clifton, senior vice president and general counsel.

Glenview Capital announced on July 31, just hours after the CHS-HMA merger was announced, that it would continue its efforts to replace the HMA board. On Aug. 7 Glenview rejected HMA's offer to create a hybrid board of current members plus Glenview board nominees. Glenview's position was strengthened last Friday when it was endorsed by the Institutional Shareholders Services.

Many institutional investors are required to have an independent assessment of how they should vote on shareholder issues. The ISS endorsement was "the last piece of what Glenview needed," Skolnick said.

How will the board change affect the CHS/HMA merger? According to Skolnick, the deal was always going to be a tough sell because it requires the approval of 70% of HMA shareholder and not everyone is enamored with the $13.78 per share price.

Having a new HMA board in place will potentially make everything more challenging for CHS as it tries to move forward on a shareholder vote on the merger. Skolnick notes that the new board will need time to assess "what is going on inside of HMA" and how long it will take to fix things.

In addition, an interim CEO from Alvarez & Marsal, a consulting firm that specializes in turnarounds and interim management, will be put in place. An ongoing federal investigation into HMA's patient admission practices is another complication.

Ultimately, Skolnick expects CHS to stick with the deal. "I think [CHS] wants to become the largest hospital company—in terms of the number of hospitals—in the U.S."

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