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Tenet Defeats Proxy Effort to Oust CEO

Health care: Major shareholders back management, thwarting dissidents' rival slate.

October 12, 2000|KEITH SNIDER | BLOOMBERG NEWS

Tenet Healthcare Corp. on Wednesday defeated a proxy effort to oust Chief Executive Jeffrey Barbakow and two other directors as key shareholders backed management.

Tenet, the No. 2 U.S. hospital chain, said shareholders at its annual meeting Wednesday voted for the company's slate, led by Barbakow, who has run Tenet for seven years.

The rival slate, backed by Florida businessman and physician M. Lee Pearce, lost by what the company called an overwhelming margin. Final results won't be available for several days, the company said.

The results end a challenge that has preoccupied Santa Barbara-based Tenet since Aug. 21, although its shares have risen 32% and its fiscal first-quarter profit grew 20%.

The dissidents claimed Tenet spent too much on executives and didn't do enough to boost its profit.

"The vote shows that our shareholders kept everything in perspective," Barbakow said after the meeting. Earlier, he told investors the vote was a "strong endorsement by the shareholders of the company's board and management."

Tenet shares rose $1.63 to close at $40.06 on the New York Stock Exchange.

Pearce, who owns about 250,000 shares, or less than 1% of Tenet's stock, alleged in filings with the Securities and Exchange Commission that Tenet had too many managers and hasn't performed as well as its competitors in the last few years. Pearce said Tenet has had smaller profit than competitors since 1997, has a higher debt load and lost $100 million on physician practices it owned.

Pearce said Tenet paid Barbakow $22.5 million last year and almost $74 million in salary and options since he became chief executive. Tenet also pays former operating chief Michael Focht almost $524,000 a year in consulting fees, Pearce said in the filings.

Pearce told shareholders at the meeting in Beverly Hills he won a victory by forcing Tenet to look at how its board operates and urged the board to keep pressure on executives.

"This proxy contest was totally avoidable," Pearce said. "It was caused by an arrogant and entrenched management that refused to discuss" his concerns.

Tenet said Pearce was using old numbers that didn't reflect its sale of 20 weak hospitals in the most recent fiscal year, higher prices it charged managed-care insurers in recent contracts and cost-cutting efforts.

Last week, Tenet said those changes and others raised profit for the quarter ended Aug. 31 to $154 million, or 48 cents a share, from $128 million, or 39 cents, a year earlier.

Analysts said the proxy fight was a temporary distraction for Tenet, which they said has rebounded from its acquisition of eight financially troubled hospitals in Philadelphia.

"The company is on a roll right now," Donaldson, Lufkin & Jenrette Inc. analyst John Hindelong said before the meeting. "I expect them to continue to do well."

Pearce said at the meeting that Tenet has a bad record on corporate board issues and said Tenet's last two profitable quarters "do not make a track record of sustainable growth."

The outcome of the proxy battle appeared to turn in favor of Tenet over the last few days as key institutional shareholders, which own 94% of the company's outstanding shares, changed their early opinions and decided to back the Tenet nominees over the Pearce-led nominees.

Tenet won support of the California Public Employees' Retirement System, the biggest public pension fund in the U.S., and from the American Federation of State, County and Municipal Employees, the biggest public workers union in the U.S. and a union that represents Tenet employees.

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