Tenet Healthcare said it plans to sell eight U.S. hospitals in four markets, including Philadelphia, and all nine U.K. facilities to reduce debt, which CEO Trevor Fetter said will yield between $900 million and $1 billion.
In addition to the sales, Fetter said at the Baird 2017 Global Healthcare Conference on Wednesday that Tenet investors are also debating whether to break up Tenet along its three main business lines: hospitals, ambulatory surgery centers and revenue-cycle software, Modern Healthcare reported.
- Tenet recently announced that it’s selling two Philadelphia hospitals, Hahnemann University Hospital and St. Christopher’s Hospital for Children, to Paladin Healthcare for $170 million.
Tenet isn’t the only system selling off facilities to clear debt. Community Health Systems most notably is looking to divest at least 30 hospitals to bring in billions of net revenue after losing $1.7 billion last year accumulating about $15 billion in debt.
Large mergers and acquisitions have heated up this year. A recent report by Kaufman, Hall & Associates, LLC found that hospital and health systems mergers and acquisitions increased 15% in 2Q. There were six transactions of health systems with nearly $1 billion or more in revenues announced in the first half of 2017. There were only four such deals in all of 2016.
While shedding debt, Tenet, which is the third-largest investor-owned health system in the U.S. with 70 hospitals, is also facing declining admissions. The company lost $56 million in the second quarter and a 4.5% decrease in total admissions in the first half of 2017. Divesting hospitals will help reduce debt, but it will exacerbate declining admissions.
Fetter, who announced this week that he’s leaving Tenet and plans to step down by March 15, 2018, or earlier if Tenet chooses a successor, has been president and CEO since 2003. During his presentation, Fetter pointed to Tenet’s financial improvements during his term, including closing the margin gap between the company and its peers by 1,150 basis points since 2004. There was a 13.2% gap in 2004 and Tenet has cut it down to 1.7%, said Fetter.
In addition to Tenet’s financial difficulties and sagging admissions, the company’s board has also seen changes this year. Last month, Tenet board members Randy Simpson and Matt Ripperger, who are with Tenet’s largest shareholder Glenview Capital Management, resigned. The resignations resulted from "irreconcilable differences regarding significant matters impacting Tenet and its stakeholders."
They added that Glenview “may evaluate other avenues to be a constructive owner of Tenet. Glenview remains fully committed to its ownership stake in Tenet and its desire to drive improved performance, culture and value.”
Then, a few days later, hedge fund Camber Capital purchased 5.7 million shares of Tenet Healthcare, which gives them a 5.7% stake in the system. The Boston-based hedge fund and its managing member Stephen DuBois have been involved in proxy fights with other companies. Camber purchased a 14.5% stake in Sequenom last year and advocated for operating changes, which ultimately led to the company being sold to LabCorp for $371 million.
Also, Tenet has adopted a shareholder rights program in hopes of discouraging investors from acquiring a controlling interest in the system. The program will allow shareholders to buy stock at a 50% decrease if an investor acquires 4.9% or more of the company's shares.