Tenet Shareholder Committee

Once again Tenet Healthcare Corp. is the worst 5 year performer among all 1,000 companies on the Wall Street Journal’s Shareholder Scoreboard. Last year Tenet also topped the list of worst 5 year performers.

This dismal report arrived the day before Tenet announced 4^th quarter 2007 results. The next day Tenet announced that patient admissions had increased by one tenth of one percent for the quarter and admission increases had continued on into January and February. That news sent the stock price up 62 cents, a 14.5% increase from the day before. Until that increase, the stock price had been down 15.75% for the year.

Performance has been so bad for so long that a tiny fraction was cause for cheering, even though the company still lost money in the quarter. Of course, Wall Streeters drive cars with no rear view mirror…and hope springs eternal.

Investors who have been around since the end of 2002 might have a different view. As reported in the Wall Street Journal (2/25/08), “the compound average annual return on Tenet stock was minus 20.9% for the five years through 2007. A $1,000 investment in Tenet shares at the end of 2002 would have been worth just $310 at the end of last year, compared with $1,829 for a similar investment in the Standard & Poor’s 500-stock index.”

Over the same period, book value per share has dropped from $12.44 to 11 cents, a reduction of 99.1%.

The Tenet scandals erupted at the end of October 2002. Tenet’s current CEO, Trevor Fetter, who had previously held top level jobs at the company, became Tenet’s acting CEO in May of 2003 and was awarded the title in full on September of 2003. Mr. Fetter, who has been more candid than most other Tenet executives and Board members, said of those days in 2003, “It wasn’t clear at that point how deep and fundamental the problems were in the company.” (WSJ, 2/25/08) Well…it was clear to us, as our many letters and statements from that time demonstrate. The failure to immediately seek outside help to identify the systemic failures and then rapidly execute a crisis management plan is what, in our view, prolonged and deepened the five year downward slide. Regardless of current talk about a so-called “turnaround”, from our perspective Tenet’s senior management and Board will have to do a great deal more to lift shareholders out of the deep hole they helped dig before we are ready to give them a pat on the back.

THC: The Worst Five Year Performer, Again

February 27, 2008

The TSC Blog