August 31, 2017 / 8:45 PM / a year ago

Tenet to replace CEO, board directors under activist pressure

NEW YORK (Reuters) - Tenet Healthcare Corp (THC.N) said on Thursday it would replace longtime Chief Executive Trevor Fetter and members of its board, as pressure builds from its largest shareholder to shake up the hospital company’s management.

Trevor Fetter, CEO of Tenet Healthcare, speaks at the Reuters Health Summit in New York, in this file photo dated May 7, 2013. REUTERS/Brendan McDermid

The changes come as tension rises between Tenet and Glenview Capital Management, an activist investor that owns 17.8 percent of its stock.

Glenview pulled two of its executives from Tenet’s board earlier this month, citing irreconcilable differences over strategy. The move triggered the end of a truce signed between the two sides last year, a so-called standstill agreement that now expires on Friday.

Glenview has owned shares in the company since 2012, riding the stock up to a September 2014 peak of $63.50 per share, before the stock took a nosedive.

Shares of Tenet, one of the largest U.S. hospital companies, have lost nearly three-quarters of their value since 2015. The industry has struggled over that period because of fewer patients, rising expenses and high debt. Tenet’s stock closed flat at $17.17 per share on Thursday.

Fetter, who has led the company since 2003, will step down as CEO and as a director by March 15, 2018 or when a successor is appointed, whichever comes earlier, the company said. It has already begun the search for a new CEO.

Tenet also replaced Fetter as the company’s chairman, appointing independent lead director Ronald Rittenmeyer as its executive chairman effective immediately, and said it would start a process to bring new members to its board.

The company also announced a shareholder rights plan, saying it would protect its net operating loss (NOL) of $1.7 billion, which Tenet can use to capture $600 million in tax savings.

Ownership change “could severely limit the company’s ability to utilize its NOLs,” Tenet said, defining it, under the U.S. tax code, as a 50 percentage point change in stock ownership over a three-year period by shareholders owning more than 5 percent. That effective poison pill will expire at the end of its 2018 shareholder meeting.

Tenet’s stock market value is $1.7 billion, while its long-term debt load is a whopping $15 billion.  

    Should Glenview launch its own campaign to shake up the company and its board, the activist investor will need to convince stock owners that its plan is better than Tenet’s initiatives, and assure debt holders that their plan will not impact the company’s ability to make good on paying off its hefty debt load.

Reporting by Michael Erman and Michael Flaherty; Editing by Grant McCool and Bill Rigby

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