Activist investor Glenview Capital Management said on Monday a majority of shareholders in Health Management Associates Inc HMA.N have voted to oust the U.S. hospital chain's board and replace it with Glenview's slate of directors, throwing a wrench into HMA's plans to be acquired by Community Health Systems Inc (CYH.N).
Glenview, the hedge fund which owns 14.6 percent of HMA, said it expects the transition to occur this week, after the current board reviews the voting results with its outside advisers.
Community Health and Health Management last month announced they had agreed to a $3.9 billion merger, with the larger hospital group offering $13.78 a share in cash and stock for HMA.
But Glenview quickly signaled it was not ready to sign off on the deal, saying the price should serve as a floor value for HMA and that it would press forward with its goal of replacing HMA's board with the aim of improving the company's performance.
Community Health said on Monday it remained committed to acquiring HMA.
"Our definitive agreement to acquire HMA remains unchanged. We look forward to working constructively with the new board of directors at HMA to complete this strategic transaction," Community Health spokeswoman Tomi Galin said in an emailed statement.
HMA did not immediately respond to requests for comment.
Glenview said it would consider Community's proposal in several months, once the new board, led by Steven Shulman as chairman, is in place.
Glenview had argued that HMA's weak financial results and legal issues made it hard to determine the company's full value.
"STUNNING AND SERIOUS EVENT"
CRT Capital Group analyst Sheryl Skolnick called the ouster of HMA's board a "stunning and serious event, one that happens rarely among publicly traded companies." She also cautioned that the current board, led by William Schoen, may not give up its seats without a fight. Schoen has served as HMA chairman since 1986.
HMA on Friday announced second-quarter results that were below the forecast it gave in July due to higher legal and employee severance expenses. Its chief executive, Gary Newsome, retired at the end of July, and the company named John Starcher as interim president and chief executive.
HMA in July also disclosed that it had received additional subpoenas in probes by the U.S. Department of Health and Human Services into its emergency room operations and by the Office of the Inspector General into its physician relationships.
HMA also is being investigated by the U.S. Securities and Exchange Commission over accounting practices. In December, it was the subject of a story on the "60 Minutes" CBS television program that claimed it used aggressive policies to boost admissions. Health Management denied the allegations.
Shares of HMA closed unchanged at $13.24 on Monday.
(Reporting by Susan Kelly in Chicago; Editing by Gary Hill and Phil Berlowitz)