TENET HEALTHCARE CORP
DFAN14A, 2000-08-22
GENERAL MEDICAL & SURGICAL HOSPITALS, NEC
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Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549







SCHEDULE 14A INFORMATION




Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934





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TENET HEALTHCARE CORPORATION

(Name of Registrant as Specified In Its Charter)



TENET SHAREHOLDER COMMITTEE,
L.L.C.

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Table of Contents








Tenet Shareholder Committee



Time for a Change

August 21, 2000










TABLE OF CONTENTS








	
	
	
	
	
	
	
	
	



Tenet Shareholder Committee


Replacement Slate Nominated


Poor Financial Performance


Executive Compensation

and

Bloated Management


You Now Know:

Change Is Needed












Table of Contents








Replacement Slate Nominated




Tenet Shareholder Committee has nominated

4 directors to replace Tenet’s slate of

incumbent directors








        •
         
        Why?










         
        •
         
        Poor Financial Performance




         




         
        •
         
        Exorbitant Executive Compensation and Bloated Management




         




         
        •
         
        Poor Corporate Governance Practices





2




Table of Contents











Poor Financial Performance



Did You Know?



Tenet has the worst ROA among its competitors in fiscal 1997, 1998
(excepting HCA, due to the Medicare fraud investigation), 1999, and is on
track to repeat this feat in fiscal 2000.







         
         
         
         
         
         
         
         
         
         
         




        1995
        
        1996
        
        1997
        
        1998
        
        1999
        
        2000




        

        
        

        
        

        
        

        
        

        
        






        2.8%
        
        4.3%
        
        (2.4)%
        
        2.1%
        
        1.9%
        
        2.2%













       
         
        SOURCE: Form 10-K for each respective company. Dividing net income by the
average of beginning and ending assets.





3




Table of Contents






Poor Financial Performance




Did You Know?



Tenet has the worst ROE among its competitors in both fiscal 1997 & 1999 and
without HCA’s OIG payment, THC would repeat in F2000.







         
         
         
         
         
         
         
         
         
         
         




        1995
        
        1996
        
        1997
        
        1998
        
        1999
        
        2000




        

        
        

        
        

        
        

        
        

        
        






        10.0%
        
        15.1%
        
        (8.3)%
        
        7.7%
        
        6.7%
        
        7.6%













       
         
        SOURCE: Form 10-K for each respective company. Dividing net income by the
average of beginning and ending equity.






4




Table of Contents





Poor Financial Performance




Did You Know?



Tenet EBITDA margins peaked in fiscal 1996 ... and have declined steadily
thereafter.







         
         
         
         
         
         
         
         
         




        1996
        
        1997
        
        1998
        
        1999
        
        2000




        

        
        

        
        

        
        

        
        






        19.8%
        
        17.5%
        
        18.3%
        
        17.1%
        
        17.0%













       
         
        SOURCE: Form 10-K for each respective company. Dividing EBITDA by net revenue.





5




Table of Contents






Poor Financial Performance




Did You Know?



Tenet has consistently maintained the highest leverage among its competitors.
From F1995 through F2000, Tenet’s Debt/Equity is the highest.







         
         
         
         
         
         
         
         
         
         
         




        1995
        
        1996
        
        1997
        
        1998
        
        1999
        
        2000




        

        
        

        
        

        
        

        
        

        
        





        1.79x
        
        1.23x
        
        1.57x
        
        1.64x
        
        1.66x
        
        1.40x













       
         
        SOURCE: Form 10-K for each respective company. Dividing short-term and
long-term debt by equity.





6




Table of Contents






Poor Financial Performance




Did You Know?



Since fiscal 1995, Tenet has the highest level of debt to cash flow
(Debt/EBITDA) among its competitors each and every year. Close to keeping
record in 2000.







         
         
         
         
         
         
         
         
         
         
         




        1995
        
        1996
        
        1997
        
        1998
        
        1999
        
        2000




        

        
        

        
        

        
        

        
        

        
        






        5.71x
        
        2.96x
        
        3.31x
        
        3.23x
        
        3.46x
        
        2.93x













       
         
        SOURCE: Form 10-K for each respective company. Dividing short-term and
long-term debt by EBITDA.





7




Table of Contents






Poor Financial Performance




Did You Know?




From fiscal 1997 — 1999, Tenet’s cost of

debt capital is the highest among its

competitors.








         
         
         
         
         
         
         




        1997
        
        1998
        
        1999
        
        2000




        

        
        

        
        

        
        

        
        

        
        






        10.05%
        
        8.52%
        
        7.90%
        
        7.91%













       
         
        SOURCE: Form 10-K for each respective company. Dividing interest expense by
the average of beginning and ending short-term and long-term debt.





8




Table of Contents






Poor Financial Performance




Did You Know?



Since fiscal 1994, Tenet has written off more than $2.15 billion after-tax,
exceeding the total equity turned over to the management team in the beginning
of fiscal 1994.








       
         
        Source: Form 10-K. Sum of all restructuring and asset impairment changes, tax
adjusted with a 40% tax rate, plus all after-tax discontinued operations and
extraordinary item charges.





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Table of Contents






Poor Financial Performance




Did You Know?




From fiscal 1995-2000, after Capital

Expenditures, Tenet produced NO CASH.

“Tenet unfortunately, has not generated any

free cash flow over the last four years...”

(WST 7/3/2000).








         
         
         
         
         
         
         
         
         
         
         




        1995
        
        1996
        
        1997
        
        1998
        
        1999
        
        2000




        

        
        

        
        

        
        

        
        

        
        






        (8.2)%
        
        (3.1)%
        
        0.0%
        
        (1.3)%
        
        (0.1)%
        
        2.2%













       
         
        SOURCE: Form 10-K for each respective company. Dividing Cash Flow From
Operations less Capital Expenditures by Net Revenue.





10




Table of Contents






Poor Financial Performance




Did You Know?








        •
         
        A/R Days are UP 23.6 days since F1997. This increase required $738
Million in CASH to fund, negatively impacting EPS by $0.11 annually.










         
         
         
         
         
         
         
         
         




        1996
        
        1997
        
        1998
        
        1999
        
        2000




        

        
        

        
        

        
        

        
        






        55.0
        
        56.5
        
        64.3
        
        77.8
        
        80.1













       
         
        SOURCE: Tenet’s Form 10-K for each year. Change in DSO in labeled year from
three years earlier. Multiply $738 million by average cost of debt capital,
with 40% tax rate and 314.9 MM fully diluted shares.





11




Table of Contents






Poor Financial Performance




Did You Know?



Tenet spends over $60 million annually for its legal counsel, hiring over 700
outside law firms? (House Counsel, “Code Blue, GC Healthcare”, May/June 2000).


12




Table of Contents





Poor Financial Performance




Did You Know?



Tenet has admitted losing $100 million per year from its physician practices,
an estimated $530 million to date. Another $500 million in write-offs makes
management’s mistake a $1 Billion error.








       
         
        Source: Tenet’s investor presentation admits to $100 million operating loss.
Our estimate of losses since end of fiscal 1993 is $530 million. Write-off’s
include $157 million from F97-F99 and $177 million in first 9 months of fiscal
2000 to cover about 40% of physician contracts. Total write-off to date is
$334 million. Our $500 million estimate assumes a further write-off of $166
million for remaining 60% of physician practices.





13




Table of Contents






Poor Financial Performance




Below Competitor’s Average Performance in F1999








        •
         
        Return on Assets*




         




        •
         
        Return on Capital*




         




        •
         
        Return on Equity*




         




        •
         
        LTD / Equity*




         




        •
         
        Total Debt / Equity*




         




        •
         
        Total Debt / EBITDA*




         




        •
         
        EBITDA / Interest*




         




        •
         
        Average Cost of Debt*




         




        •
         
        EBITDA Margin




         




        •
         
        EBIT Margin




         




        •
         
        Interest as % revenue*




         




        •
         
        Pretax Margin*




         




        •
         
        EBITDA / Share Growth




         




        •
         
        Cash Flow Operations / Revenue*




         




        •
         
        Cash Flow Operations — Capital Expenditures/ Revenue




         




        •
         
        Net A/R DSO




         




        •
         
        Change in A/R DSO




         




        •
         
        3 Year Change in A/R DSO




         




        •
         
        Revenue / Employee




         




        •
         
        EBITDA / Employee






* — Lowest in F1999




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Table of Contents





Poor Financial Performance




Did You Know?



If we give 5 points to the best performer, and 1 point to the worst performer
in each of 21 financial measurements, how do they rate?




    




         
         
         
         
         
         
         
         
         




        
        
        
        
        
        
        Total




        
        
        Average
        
        Points





         
         
         
         
         
         
         
         
         




        
  • HMA
    		• 
        
        
        4.24
        
        
        
        89
        

    

    

    
        
  • UHS
    		• 
        
        
        3.57
        
        
        
        75
        

    

    

    
        
  • HCA
    		• 
        
        
        3.29
        
        
        
        69
        

    

    

    
        
  • QHGI
    		• 
        
        
        2.10
        
        
        
        44
        

    

    

    
        
  • THC
    		• 
        
        
        1.81
        
        
        
        38
        

    


    

    

    Tenet has the worst performance in 11 of 21 measurements. Next worst is Quorum
& HMA, scoring lowest just 3 times.


    


    

    
       
         
        Source: See Tenet Fact Book for full details of each of the 21 financial
measurements. All measurements for fiscal 1999 performance.

    

    

    15


    

    Table of Contents
    



    

    

    Executive Compensation
    
and
    
Bloated Management
    



    Did You Know?



    

    

    
        •
         
        According to the LA Times, CEO Barbakow was paid $22.5 million in 1999.

    

    
         

    

    
        •
         
        At $30 per share, the company has paid Barbakow nearly $74 Million in 7 years.

    

    

    


    

    
       
         
        Source: Tenet proxy material of cash compensation and stock options. $74
million assumes that all options are cashed in at $30 per share. CEO has not
exercised any options since assuming CEO post.

    

    

    16


    

    Table of Contents
    





    Executive Compensation
    
and
    
Bloated Management
    



    Did You Know?



    

    

    
        •
         
        Ex-COO Michael Focht retired on December 31, 1999.

    

    
         

    

    
        •
         
        Yet Tenet still pays him $523,992 per year for “consulting” for 3 years.
During this 3 years, he adds 3 years to his retirement vesting schedule
and will receive annual compensation in the range of $486,000-$594,000 for
a period of 10 years following his retirement.

    

    

    


    

    
       
         
        (Source: Fiscal 1999 and Fiscal 2000 Form 10-K, Exhibit 10-N)

    

    

    17


    

    Table of Contents
    





    Executive Compensation
    
and
    
Bloated Management
    



    Did You Know?



    Both Tenet and HCA have 1,450 employees at their corporate / operational /
regional offices. Yet HCA owns 53% more beds than Tenet. On average, THC
needs 11 corporate people / hospital. HCA provides better financial results
with just 7.


    


    

    
       
         
        Source: Tenet and HCA (Columbia/HCA)’s Form-10K for total employees and
Tenet’s F1999 10-K for corporate, operational and regional employees. HCA’s
corporate, operational and regional employees provided by HCA. Numbers of
hospitals and licensed beds according to form 10-K’s for respective companies
for fiscal 1999.

    

    

    18


    

    Table of Contents
    





    Executive Compensation
    
and
    
Bloated Management
    



    Did You Know?



    Both THC and HCA own comparably sized hospitals (237 beds vs. 221 beds /
hospital). Yet THC needs 19% more employees (968/hospital) than HCA
(812/hospital) to operate the hospitals.


    


    

    
       
         
        Source: Tenet and HCA (Columbia/HCA)’s Fiscal 1999 Form-10K for total
employees. Numbers of hospitals and licensed beds according to Fiscal 1999
Form 10-K’s for respective companies.

    

    

    19


    

    Table of Contents
    





    Poor Corporate Governance
    
Practices
    



    Did You Know?



    At the last 2 annual shareholder meetings, shareholders have overwhelmingly
voted to recommend that the Board eliminate the staggered system of electing
directors: 62% and 71% respectively.


    


    

    
       
         
        Source: Tenet’s Form 10-Q for November quarter of each fiscal year.

    

    

    20


    

    Table of Contents
    





    Poor Corporate Governance
    
Practices
    



    Did You Know?



    The Board ignored shareholders twice by maintaining staggered board
elections.

    21


    

    Table of Contents
    




    

    

    You Now Know:
    
Change Is Needed
    


    

    

    
        •
         
        Board ignores shareholders’ staggered board recommendation

    

    
         

    

    
        •
         
        Management is bloated and overpaid

    

    
         

    

    
        •
         
        Management after 7 years has produced the worst operating results in the industry

    

    

    22


    

    Table of Contents
    



    You Now Know:
    
Change Is Needed
    


    

    

    
        •
         
        Senior management should be comprised of hospital operators, rather than investment bankers.

    

    
         

    

    
        •
         
        Headquarters should be moved out of Santa Barbara to Nashville and support staff downsized.

    

    
         

    

    
        •
         
        The corporate air force should go.

    

    

    23



    

    Table of Contents
    



    You Now Know:
    
Change Is Needed
    


    

    

    
        •
         
        Staggered board terms should be eliminated.

    

    
         

    

    
        •
         
        The company should be operated for the benefit of shareholders rather than
for entrenched management.

    

    


    24


    



















    






    



    

    

    




    

    

    



    

    

    
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