- ASL Strategic Value Fund sent a letter to Community Health Systems' (CHS) board of directors stating "it is time" to replace CEO Wayne Smith.
- The letter, dated Aug. 8, states action is needed immediately as management’s "previous missteps have resulted in billions of dollars of shareholder losses."
- The authors also stated the board should "claw back significant portions" of compensation from existing and retired executives.
CHS has been trying to stay afloat in 2017 through hospital divestitures and prepping to focus on growth markets in the future, but recent investor activity signals internal changes could be coming.
The hospital operator accumulated quite a debt load (about $15 billion) and lost $1.7 billion last year. In hopes to staunch the financial bleeding, CHS was pursuing the sale of 30 hospitals this year. In its Q2 earnings this month, CEO Wayne Smith disclosed the organization was going to pursue more divestiture opportunities in addition to the originally planned divestitures.
The company also disclosed a net loss of $137 million and increasing uncompensated care in Q2.
The goal of sustainability in growth markets and reduced debt by 2018 is likely to be a challenging task. Experts have questioned whether CHS will be able to right the ship before declaring bankruptcy.
The ASL Strategic Value Fund letter authors stated that since the company went public in 2000, Smith has received total compensation of over $350 million, while the five most senior executives have received more than a total of $500 million. "This amount is nearly the current market capitalization of the company," they wrote.
Tianqiao Chen, through the Shanda Group, recently purchased 9.8 million additional shares in CHS, raising his equity stake to 22.1%. The purchase positions Chen to potentially become an activist investor in the company (he has historically been a passive investor with the hospital operator).
The recent activity has put pressure on the system. The ASL authors pull no punches in their letter, and the story will continue to be watched this year.