Union supports North Las Vegas hospital owner in proxy battle

Thursday, Sept. 28, 2000 | 10:41 a.m.

SUN STAFF AND WIRE REPORTS

SANTA BARBARA, Calif. -- Tenet Healthcare Corp., the No. 2 U.S. hospital chain, won support of the American Federation of State, County and Municipal Employees on Wednesday in management's fight to turn back a shareholder proxy challenge.

Tenet owns Lake Mead Hospital in North Las Vegas.

AFSCME, the largest public employees union in the nation, said it sent a letter to large institutional shareholders urging them to back Tenet's three director nominees in voting that will culminate with Tenet's annual meeting Oct. 11.

Shareholders led by Florida physician and businessman M. Lee Pearce are trying to oust Chief Executive Jeffrey Barbakow and two other board members. The shareholders group has accused the Santa Barbara, Calif.-based company of spending too much on executive pay and not boosting profits enough.

"A number of the things the dissident slate is saying make sense," said AFSCME spokesman Michael Zucker. "The problem is, we don't believe in the dissident slate. We see them as extremely self-interested."

Zucker said Pearce has sued Tenet over a real estate dispute in Florida and is chairman of Lep Technology Inc., an Internet company AFSCME said competes with Tenet unit Broadlane Inc.

The union said pension funds in which its members participate own 6.5 million shares of Tenet stock, or about 2 percent of Tenet's outstanding shares. The union represents about 3 percent of Tenet's 106,000 employees.

Tenet shares rose 1/2 to 36 1/16 in trading on the New York Stock Exchange. The shares have risen 53 percent this year.

"There is no question Tenet's operations must be reformed in a number of ways," AFSCME said in the letter. "However, we believe that the Pearce group is not fit for the job and their election would be harmful to the long-term interests of shareholders and our company."

Zucker said AFSCME agrees Tenet pays executives too much and should change its board structure.

"They must have gotten this from the company, because it's filled with inaccuracies and red herrings," said Michael Gallagher, a spokesman for Pearce's Tenet Shareholder Committee and one of the group's board nominees.

Lep is a shell company with an investment in askRed.com, a medical-diagnostic software and chronic disease management company that doesn't compete with Broadlane, an online medical-supply marketplace, Gallagher said.

Tenet spokesman Harry Anderson declined to comment.

AFSCME said the letter was mailed to investors who hold 75 percent of Tenet's stock.

The union, which has 1.3 million members, said its staff retirement plan also holds Tenet shares.

Today, Tenet said it also received support for its board nominees from the Proxy Monitor, which it called "a widely respected independent proxy research, voting and auditing advisor."

"We believe shareholders' interests would be best served by allowing management to continue implementation of its turnaround program," a Proxy Monitor report said, according to Tenet.

But on Tuesday, the California Public Employees' Retirement System said it backs Pearce's proxy challenge. Calpers, the largest public pension fund in the United States, owns about 1.8 million shares of Tenet stock.

And Tenet said Institutional Shareholder Services has also announced support for the dissident slate.

"We recognize the historic position of CalPERS and ISS on corporate governance issues," Barbakow said. "We have already addressed some of their concerns this year by redeeming the 'poison pill' stockholder rights plan and removing the management director from the board's nominating committee."

"We will continue this dialogue with our shareholders about governance concerns. But we urge these groups to focus on what we believe are the true issues in this election -- Tenet's improved financial performance and enhanced shareholder value, and the personal agenda of M. Lee Pearce," Barbakow said.

Tenet owns 110 hospitals.