Tenet exploring sale of Conifer unit as cost-cutting goals expand

Tenet Healthcare announced it’s looking to sell its business services subsidiary, Conifer Health Solutions, and will aim to cut an additional $100 million in costs by the end of 2018.

Its expanded cost reduction plan, now targeting $250 million in cuts over the next year, comes as the for-profit operator faces $15 billion in long-term debt and a shakeup in its management, with CEO Trevor Fetter leaving in October months ahead of his scheduled departure. The Dec. 19 announcement continued these changes, as Tenet said it will search for additional independent directors after appointing three to the board since August.

The company has made a series of moves to speed up cost-cutting efforts since its largest shareholder, Glenview Capital Management, had its two representatives on the board quit over “irreconcilable differences.” Tenet floated the idea of selling itself while also instituting a shareholders’ rights plan to ward off a potential proxy fight. Breaking up parts of the company along its different service lines appear to remain a possibility.

“We remain open to all options that can enhance shareholder value, and given that we have adequate liquidity to operate our business and no near-term debt obligations, we have the flexibility we need to achieve the best alternative for shareholders,” said interim CEO Ronald Rittenmeyer.

Conifer, which provides technology and financial services to healthcare organizations, has been a profitable business segment for Tenet, employing more than 15,000 people as of the end of 2016. As Tenet continues its hospital divesture—such as the sale of its Chicago-area hospitals—analysts said owning Conifer “makes less sense strategically.”

"While we still view the Conifer business as a favorable way to diversify earnings away from acute care towards higher margin, capital-lite businesses, this business [Conifer] is still dependent on the growth and performance of Tenet's hospitals,” said a note from Nephron Research, as reported by the Dallas Morning News. “We are not sure this business model works as well during a period of hospital divestitures. There is ... risk that as Tenet divests hospitals, those hospitals may not choose to renew with Conifer (especially with recent sales to [competitor] HCA).”

Tenet expects to make a decision on selling Conifer during the first half of 2018.