From Bad to Worse for Tenet Shareholders

August was a sad month for Tenet shareholders.

On August 28^th, Tenet’s stock closed at $3.34. This was the lowest adjusted close since the stock began trading under the Tenet name on June 26, 1995.

The highest adjusted close was $52.20 on October 3, 2002, a few weeks before the revelations of the company’s Medicare outlier scam and the FBI raid on the company’s hospital in Redding, California.

In 2007, year to date, the stock price has dropped 53%. In August alone the stock price dropped 35%.

In the 23 trading days of August, total volume equaled 88% of the outstanding shares.  73.5 million shares traded on one day, August 28.

On August 27, Ken Weakley, a health care analyst with Credit Suisse and formerly with UBS Warburg, published a 16 page research report on Tenet. Mr. Weakley wrote:

·        “We would argue that no tangible evidence supports a turnaround thesis at this point, as almost every important metric for hospital operations fails to show a sign of recovery. Therefore, we view THC not as a turnaround story but as one that is still very much in secular decline.”

·        “Without an industry recovery in volume or patient insurance, a Chapter 11 may be necessary in three years, in our opinion.”

Tenet responded with an August 29 press release, quoting company chief financial officer Biggs Porter, who said, “We believe we have the financial resources to execute our turnaround.” Mr. Porter also said, “We are surprised by the analyst’s conclusions…”

Mr. Weakley is the talented analyst who single handedly blew the whistle on Tenet’s Medicare outlier scheme back in October of 2002. It was his analysis, from outside the company, which revealed the improper and unsustainable reliance on Medicare outlier payments and resulting dependence on commercial stop loss payments. Mr. Weakley may very well be the one person with whom the company’s strong PR department should avoid a credibility contest.

In the last two weeks of August, as reported in SEC filings, three of Tenet’s senior executives and two Board members bought a total of 219,410 shares for $789,175.

According to a company spokesman, the purchase of shares by one member of this group, Tenet’s CEO, was a demonstration of confidence in “Tenet’s prospects to successfully implement the turnaround initiative currently underway.”

In our opinion, Tenet’s senior executives and board members are, and have been, vastly overpaid relative to their performance on behalf of shareholders. The total dollar cost of the share purchases represents approximately 6% of the total compensation for the members of this group, based on the latest proxy statement and other sources. Considered in that light, what is the level of confidence demonstrated by these share purchases?