Triad Hospitals Inc. (NYSE:TRI) may see itself in more hot water today after Axon again increased its stake in the company, which is now at 7.4% according to their latest 13D/A filing with the SEC. The hedge fund also attached a previous letter it had sent in early November to this filing, which highlighted the changes it was seeking.
These changes included:
- Significantly amending the composition of the board, in order
to improve the depth of financial sophistication, and also to include
representation from shareholders. The current board is simply not
credible as a guardian of our capital.
- The company should focus
on improving and optimizing existing assets. It is critical that focus
be placed on improving the company's analytical tools and controls.
Margins must be improved, capital expenditures must be rationalized,
and issues like bad debt must be analyzed carefully. Ultimately, until
the current assets have been optimized and management control has been
enhanced, it does not appear sensible to continually expand, and
increase complexity.
- Capital usage strategy should be
dramatically altered. Instead of aggressive spending on capital
expenditures and acquisitions, the company should reduce expenditures
to levels needed to optimize existing assets. Excess cash flow should
be returned to shareholders, via dividends or share buyback.
- The
company has the flexibility to increase leverage significantly without
impairing operating flexibility, or increasing risk to imprudent
levels. Rather than keeping this capacity as a 'war chest', the company
should instead use it to optimize the capital structure, and generate
return for shareholders. With these steps, the company could
comfortably implement a capital reduction of $1.0 to $1.25 billion, and
still have leverage ratios and coverage metrics that would be prudent
and manageable.
Axon also said the company should amend the composition of the board,
focus on improving and optimizing existing assets, return excess cash flow through dividends and they
increase leverage significantly. In the end, the hedge fund believes the fair
value of the stock is 25 to 50% higher than current levels. This makes TRI a stock to
keep an eye on as the fund works to implement these changes. The stock is currently trading down 2% in morning trading.
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