Tenet Healthcare Corp. is locked in a proxy fight with a shareholder who says the No. 2 U.S. hospital chain is ailing and needs new board members who will cut costs.
M. Lee Pearce, a Miami physician who owns about 250,000 shares, or less than 1%, of Tenet's stock, filed a proxy challenge Aug. 21 with the Securities and Exchange Commission alleging Tenet is bloated with managers and hasn't performed as well as competitors.
Tenet's profit rose 23% in its fiscal fourth quarter ended May 31, as the company sold weak hospitals and won price increases from managed-care health insurers that helped it recover from cuts in government health-care programs. Its shares have risen 79% in the last 52 weeks.
Still, the Santa Barbara-based company has had smaller profit than its competitors since 1997, has a higher debt load and lost $100 million a year on physician practices it owned, Pearce said in his filing.
Tenet paid Chief Executive Jeffrey Barbakow $22.5 million last year and almost $74 million in salary and options since he took the post seven years ago, the filing said. Tenet also pays Michael Focht, its former chief operating officer, almost $524,000 a year in consulting fees, the filing said.
Pearce, who has a record as a corporate raider, wants to oust Barbakow from his board seat.
Tenet shares rose 58 cents to close at $30.89 on the New York Stock Exchange.
Tenet questioned Pearce's motives and said he ignored Tenet's recent results. The company said it had cash flow of $547 million in the recent quarter, cut bad debt to 7% in its fourth quarter, from 7.5% in the previous quarter, and cut losses on physician practices.
"This is not a company that is on the ropes," Tenet spokesman Harry Anderson said.
Tenet also has analysts on its side. Four analysts have defended the company, and Robertson Stephens analyst Sheryl Skolnick dismissed the proxy fight as a "nuisance" without support among big shareholders.
Tenet said it will respond in detail to Pearce's allegations. Pearce is expected to mail proxy statements to shareholders next week asking them to elect him and three others to the board at Tenet's annual meeting Oct. 11.
Pearce, 69, sold hospitals in Miami and Fort Lauderdale, Fla., to American Medical International, a predecessor of Tenet, in 1985. He was on the board of AMI and OrNda HealthCorp, both companies that were acquired by Tenet.
Pearce began the proxy fight after Tenet officials rejected a list of demands during a July meeting.
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Shares of Tenet Healthcare have risen 31% so far this year but are still below a high of $40 in April 1998.
Quarterly closes and latest for THC
Thursday: $30.89, up 58 cents
Source: Bloomberg News