New York City-based Glenview Capital Management turned up the heat Tuesday (June 25) as it called for all new board members of Health Management Associates, the parent company of Sparks Health System in Fort Smith and Summit Medical Center in Van Buren.
Tuesday’s U.S. Securities and Exchange filing by Glenview is part of several recent moves that indicate HMA could be acquired by another hospital company or see a management makeover conducted by Glenview.
Analysts have suggested that the most likely company to buy HMA would be Franklin, Tenn.-based Community Health Systems. Sources tell The City Wire that the 500-job regional service center HMA has planned for Fort Smith could have an uncertain future if a larger hospital operator were to buy HMA.
HMA officials announced on April 4 that the center would be housed in what is now the Phoenix Expo Center in what was once a portion of Phoenix Village Mall. The property is owned by FSM Redevelopment Partners. HMA estimates the annual payroll will be $21.5 million, with the center at full employment within 12 months. The company is also investing $4 million in furniture, fixtures and equipment for the new center. The facility is scheduled to begin operations in July.
Lance Beaty, general manager of FSM Redevelopment Partners, said Tuesday that HMA has asked him to deliver a portion of the building two months earlier than planned.
“We are in close touch with HMA and our dates have been accelerated,” Beaty said.
HMA acquired Sparks in a $138-million deal that closed Nov. 30, 2009.
THE RECENT MOVES
After Glenview Capital made a move on May 17 to expand its ownership of HMA, the HMA Board of Directors followed on May 24 with the adoption of a standard “poison pill” provision blocking Glenview from acquiring more shares.
Glenview owns 14.6% of HMA shares, and says it has investments of approximately $2 billion with five hospital chains. Glenview manages more than $6 billion in all of its investment funds.
Market watchers say the hospital chains will likely benefit as more of the federal healthcare law is implemented.
The poison pill action was followed by a surprise announcement on May 29 that HMA CEO Gary Newsome would retire effective July 31. Newsome announced he is leaving to work for the Church of Jesus Christ of Latter-Day Saints in the Uruguay-Montevideo Mission in South America. The move further fueled speculation that the company was bracing for an acquisition or management shift induced by Glenview.
Glenview officials asked HMA to withdraw the poison pill measure and to work with Glenview to increase shareholder value.
‘CASE FOR CHANGE’
In its 50-page filing, Glenview expounded upon the following five reasons change is needed at HMA:
• Consistent track record of underperformance;
• Substandard financial management and focus;
• Elevated number of compliance related issues and concerns;
• Misalignment between Board direction and shareholder priorities; and,
• Sitting Board is insular and lacks a credible path to continuous improvement.
According to Glenview’s statement, the company tried to speak to HMA execs more than two years ago about their concerns and ideas.
“Following more than 18 months of conversations with management regarding key strategic, operating and capital allocation initiatives, there was no evidence that management was either willing to, or were in a position to, be open minded or intellectually honest in their analysis,” Glenview noted in its press release.
Continuing, Glenview discussed its choices: “Unfortunately, when a Board refuses to engage in a constructive dialogue, continues upon a path that has dissipated shareholder value and increased the risk profile of the firm and through a long history of inflexibility and underperformance has failed to live up to their responsibility to public shareholders, a company's owners are left with two suboptimal choices: a) Sell your shares and abandon the opportunity set offered by a strong industry and strong collection of assets that you own at a discount price; or b) Take action to improve the Board and management to unlock the full potential of your investment.”
Officials with Glenview say the problems at HMA are so deep that they believe all new Board members are required who have the experience to make changes.
“The breadth of the challenges is enormous at HMA. There are deficiencies in management quality and retention, regulatory and compliance, financial planning and analysis, capital allocation, strategic planning and direction and in governance. These areas of strengthening are too large for any one or two directors to tackle alone, and the areas of expertise required require a large number of Board members with a myriad of talents and experiences,” noted the Glenview statement.
The proposed board members are: Mary Taylor Behrens, Steven Epstein, Kirk Gorman, Stephen Guillard, Earl Holland, John McCarty, Steven Shulman and Peter Urbanowicz. (Detail on each proposed director can be found at this link.)
HMA responded Tuesday afternoon with a short statement.
“Health Management Associates, Inc. (NYSE:HMA) commented today on preliminary materials filed by Glenview Capital Management, LLC, with the Securities and Exchange Commission this morning related to the composition of HMA’s Board of Directors.
“HMA’s Board of Directors recently engaged Morgan Stanley to assist with its ongoing consideration of strategic alternatives and opportunities available to HMA.
“HMA’s Board of Directors is reviewing Glenview’s filings and will respond in due course.”
It is unclear if Glenview seeks to control HMA and keep it intact, or to seek control to better position HMA to be sold. In its filings, Glenview has said it is uncertain on the best value path for HMA shareholders.
“We believe that any comprehensive review of alternatives must include both a strong plan of independent value creation as well as an open and unbiased review of potential strategic combinations,” Glenview has said. “In our opinion, such a review cannot be prejudged by us, or any individual shareholder, but rather is best established and executed by highly qualified independent directors.”
Glenview officials admit to meeting with “industry participants” who have indicated an interest in “friendly mergers or acquisitions” within the hospital sector.
“A highly qualified reconstituted board ensures that any sale process would be professional and cooperative and therefore likely to surface maximum value should such value be attainable through strategic combination,” the Glenview statement explained.
(Link here for the Glenview filing with the SEC.)