Updated from 2 p.m.
has one less wound to nurse.
The giant hospital chain on Thursday said that it will pay $215 million to settle a number of class-action shareholder lawsuits that have been pending against the company for years. Two individuals, including former CEO Jeffrey Barbakow, will add some of their own funds to that deal.
Barbarkow cashed out $111 million worth of stock options less than a year before scandal engulfed the company and erased billions of dollars from its market value. He will now give $1 million back to shareholders who lost money, with former operating chief Thomas Mackey contributing another $500,000 to the pot.
Caymus Partners analyst Jeff Villwock, who is short the stock, called those payments -- particularly the one being made by Barbakow -- "very interesting."
"Barbakow took well over $100 million out of this company ... so giving back 1% is not necessarily a just settlement," says Villwock, who conducts research on behalf of the Tenet Shareholder Committee, a group that owns the stock but has been long critical of management. "But in essence, he is agreeing that he's got some liability here. I don't believe this is over at all; I believe there is a lot more to come."
Prior to a WorldCom settlement last year in which directors contributed to the payment to plaintiffs, corporate insiders had generally escaped such payments and left their former employers to pick up the entire tab. Both Barbakow and Mackey still face possible charges for securities fraud, however. They are among six former executives -- along with the company itself -- to field so-called Wells Notices from the
Securities and Exchange Commission
late last spring. The notices signal the government's interest in filing civil charges against the recipients.
The SEC has also ordered Tenet to conduct a forensic audit of its past reserves that, some believe, could result in restatements. That audit has now stretched on for months, although Tenet told
last week that it is now nearing completion. In addition, the company confirmed that interim CFO Timothy Pullen is off work for health-related reasons. Pullen began filling in as CFO after the regular CFO left the company following a brief stint at the post last year. Tenet expects Pullen to return.
In the meantime, Tenet faces massive legal challenges. For starters, the company has spent months fighting off criminal charges that could exclude one of its hospitals from the Medicare program and send a former hospital CEO to jail. The jury continues to deliberate.
Going forward, Tenet still needs to settle multiple probes by the government as well. The Tenet Shareholder Committee has estimated that the company could fork over billions of dollars for penalties in the end.
Given the company's ongoing exposure, some experts -- including those who welcomed news of the shareholder settlement -- feel little reason to celebrate right now.
"While the settlement is nice and it's necessary that the company get this behind it ... it's still not one of the big issues," says CRT Capital analyst Sheryl Skolnick, who has no position in Tenet and has yet to establish a rating on the company's stock. CRT has no position in Tenet and does no banking for the company. "It's not the big deal some people would like to make it out to be. It's certainly not a reason to buy the stock, in my opinion."
Initially, at least, investors felt otherwise. They pushed the stock up more than 6% in premarket trading, immediately after news of the settlement broke. But that big gain proved short-lived, with the shares up just 1.5% to $7.64 later Thursday morning.
Hospital companies have weathered a tough week overall. Following a dismal update on Tuesday, rural hospital operator
took a huge hit -- plummeting nearly 20% -- and dragged the entire sector down with it. The company cited a number of challenges, including reimbursement cuts and ongoing pressures from the uninsured, that could prove to be industry-wide in nature.
Skolnick, for one, is worried.
"The environment right now for hospitals seems to be, in a word, 'lousy,'" she says. "Where do you go for high-margin patients? There just aren't any."
She sees more pain ahead for Tenet, in particular.
"I think that, for those people hoping for a turnaround, three years is probably right" for the time frame, she says. "But starting when, I'm not sure. I don't think it is today."