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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