Hospital operator Health Management Associates has hired a bank and law firm to help with its review of strategic alternatives, and following a large share buildup by hedge fund Glenview Capital Management LLC, that has sparked Wall Street speculation about a potential sale.
Health Management’s late-Wednesday announcement followed a regulatory filing from Glenview a day earlier that pushed for a relaxation of a so-called poison pill that limits share accumulation. The hedge fund–the largest Health Management shareholder with a roughly 14.6% stake–wants the company to either eliminate a brake on shareholders acquiring more than 15% of the company “or, at a minimum, amend the poison pill” to a 25% threshold.
Glenview also said it’s evaluating a range of measures, including potentially changing all or part of Health Management’s board. The New York-based investor isn’t known for taking public, activist stances, but its comments lifted Health Management’s Class A shares 11.3% to $15.51 Wednesday, and they climbed another 4.8% in after-hours trading. The stock is trading at multiyear highs.
Health Management said it engaged Morgan Stanley and Weil, Gotshal & Manges LLP in connection with Glenview’s share build-up. Also, the moves are connected to “the board’s ongoing consideration of strategic alternatives and opportunities available to HMA,” the hospital operator said.
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Glenview, in its filing with the Securities and Exchange Commission Tuesday, said it intends “to engage in communications with potential nominees and may engage in communications with, among others, the issuer’s management or directors, shareholders and other potential investors, potential strategic partners, financial advisors and other industry participants, regarding such matters.”
The shareholder’s increasingly active role comes as Health Management Chief Executive Gary Newsome heads for retirement to take over a religious mission in South America, and follows a rough first quarter and news of a recent government subpoena. Health Management said Wednesday that a board committee is currently interviewing CEO candidates.
Amid the recent turmoil, analysts see potential for positive changes.
“[W]e now believe HMA’s recent [management] turnover and this increased activism are factors that significantly increase the probabilities HMA’s board could put the company in play,” Deutsche Bank analyst Darren Lehrich said in a research note, in which he raised Health Management to a buy rating from hold.
He also boosted his rating on hospital operator Community Health Systems Inc., where Glenview is also a major shareholder, and which analysts have speculated could be a potential Health Management suitor. Community Health
shares rose 2% to close at $49.95.
A representative for Community Health didn’t respond to a request for comment Wednesday. An outside spokesman for New York-based Glenview declined to comment on the investor’s Health Management plans.
CRT Capital and WallachBeth Capital also boosted ratings on Health Management. According to CRT analyst Sheryl Skolnick, “we think that Glenview is pursuing precisely the correct course and believe that it can be successful in building a consensus among HMA shareholders to nominate new directors and change the course of the company.”
Glenview’s latest move comes roughly two weeks after it said it has no intentions to make a bid to acquire the hospital operator, following the recent poison-pill adoption. Also known as shareholder-rights plans, poison pills
generally attempt to guard against unwanted takeover bids.
Health Management disclosed in a regulatory filing last month that it had adopted such a plan with a 15% trigger after Glenview reported its holding in a Schedule 13D filing.
Susquehanna analyst Chris Rigg said Glenview’s latest filing increases the pressure on Health Management to evaluate its strategic options, such as a large special dividend or the outright sale of the company.
Health Management’s board announced in late May that Mr. Newsome planned to retire effective July 31, and that the company had launched a search for his successor. That announcement came just weeks after Health Management said it received a subpoena from the SEC requesting documents related to a host of matters, including billing write-downs and contractual adjustments.
The SEC subpoena adds to scrutiny on Naples, Fla.-based Health Management, which runs 71 hospitals. The Department of Health and Human Services and the Department of Justice also have been investigating the company with a focus on issues like physician referrals and the medical necessity of emergency room tests and patient admissions, Health Management has said.
Meantime, the company had a rocky first quarter because of weak volume trends. Mr. Newsome has chalked up 2013 as a transitional year as Health Management gears up for big changes next year under the coverage-expanding health-care
overhaul law.
Date: Jun 12, 2013