Tenet's Dicey Rehab
Updated from 7:24 a.m. EDT
Investors have finally stopped focusing on Tenet's (THC) legal headaches and are realizing just how sick the hospital chain really is.
For years, investors have banked on a sweeping government settlement to cure the company's problems. But a week after inking a deal, with better terms than some anticipated, the company has seen its stock price fall to its lowest level since 1993. Back then, however, the company had been grappling with new scandals instead of resolving old ones. In other words, it could still take a number of remedial actions -- like settling lawsuits and promising reforms -- that, by now, it has already exhausted.
As a result, Tenet is under pressure to revive its weak operations for its stock price to recover. To some, the company's prognosis has rarely looked darker."In our opinion, THC is broke any way you slice it," Argus bond analyst William Eddleman wrote on Thursday. "Even if Tenet can find additional financing to continue operations over the next 18 to 24 months, we believe the company may never be able to repair its tarnished image. [Thus], we suggest exiting this credit while there is still the time and liquidity to do so." Eddleman's warning came after Tenet, following years of negotiations with the Department of Justice, finally agreed to pay $725 million in restitution -- and forego another $175 million in Medicare claims -- for allegedly defrauding the federal government. The company denied engaging in any illegal behavior but expressed regret about its past actions and agreed to operate under a corporate integrity agreement designed to prevent misconduct in the future. For its part, Tenet says that it does not normally comment on analyst research unless it contains misinformation. However, Tenet says its own employees feel very good about the company's future. It attributed the recent stock decline to investors who exited the stock after failing to see the kind of settlement-fueled rally they had expected. "That's one explanation," said Tenet spokesman Steven Campanini. "But optimism is high inside Tenet" itself. To some, including the long-critical Tenet Shareholder Committee, the company seemed to get off cheap. After all, the government had accused the company of stealing $1.6 billion in excess Medicare payments and could have pursued triple damages if it wished.
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