Tenet Healthcare Corp.'s recent announcement regarding changes in the boardroom may affect third-quarter performance and spur increased divestitures, according to analysts.
The Dallas-based hospital company said in an Aug. 31 statement that Trevor Fetter, chairman and CEO, is leaving his position, effective March 15, 2018, or earlier if a successor is appointed before then. The company also announced Ronald Rittenmeyer, independent lead director, will assume Fetter's role as executive chairman, effective immediately.
The statement came 13 days after Glenview Capital Management employees, Randy Simpson and Matt Ripperger, resigned from the board of directors, triggering the end of a standstill agreement. The agreement, which limited Glenview's actions, remains in effect for 15 days after the resignations.
Executives also approved a short-term shareholder rights program to limit shareholder change and protect the company's $1.7 billion in net operating loss, or NOL. If any entity acquires ownership of 4.9% or more of Tenet's stock, all holders of rights issued under the plan will be entitled to acquire shares of common stock at a 50% discount.
In December 2016, Tenet had about $1.7 billion in net operating loss that could be used to offset taxable gains or losses, such as the $500 million gain on Tenet's Houston hospital divestitures, Ana Gupte, Leerink analyst, said in an Aug. 31 note. This could represent $600 million in cash tax savings at a 35% tax rate, according to Gupte.
"An ownership change occurring upon a 50% change in stock ownership over a three-year period by shareholders owning in excess of 5% of the company could limit the ability to use the NOL," Gupte said in her note.
Possible sales
Leerink predicts an activist push to sell Conifer Health Solutions, a healthcare services company, that could fetch a 9x-10x multiple with net operating losses possibly offsetting tax gains.
There's also the expectation Tenet will sell or spin out the ambulatory platform of United Surgical Partners International, according to Gupte. USPI is at an 80% majority stake under Tenet and Leerink predicts could achieve a low to mid-teens multiple through sale to Optum, the health services platform of UnitedHealth Group Inc., or HCA Healthcare Inc., Tenet's larger rival.
Gupte has an "outperform" rating for Tenet.
The activist will want to weigh in on the CEO choice and the new board, but the tone here could be more constructive and the process more cooperative than before, Sheryl Skolnick, Mizuho analyst, said in an Aug. 31 note.
The actions are good for the stock in the long run, but, in the short term, could reflect in third quarter performance, according to Skolnick. Skolnick has a "neutral" rating for Tenet.