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American Federation of Teachers Criticizes CHS-HMA Transaction

The American Federation of Teachers, one of the largest teachers unions in the country and an affiliate of the AFL-CIO, wrote a letter to Franklin, Tenn.-based Community Health Systems and Naples, Fla.-based Health Management Associates expressing concerns over their pending merger.

AFT President Randi Weingarten wrote the letter to CHS Chairman, President and CEO Wayne Smith and Health Management Board Chair Steven Shulman. She also copied Larry Robbins, founder of New York City-based Glenview Capital Management, Mary Jo White, chairwoman of the Securities and Exchange Commission, and Edith Ramirez, chairwoman and commissioner of the Federal Trade Commission.

In the letter, dated Dec. 3, Ms. Weingarten said CHS' potential takeover of Health Management — which was announced earlier this summer and worth about $7.6 billion — has several risks. In particular, she said the deal has "apparent conflicts of interest" and also has complications related to Department of Justice investigations at both for-profit hospital operators. The DOJ is probing alleged Medicare fraud related to admissions practices.

The conflict of interest Ms. Weingarten said was most concerning involved Mr. Robbins and Glenview. Glenview owns 14.5 percent of Health Management and about 10 percent of CHS.

"The fact that a single hedge fund, Glenview Capital, owns the largest block of shares in both CHS and HMA, and therefore is the most influential player on both sides of the transaction, raises serious questions about the board's fiduciary responsibility," Ms. Weingarten wrote. "These apparent conflicts of interest call into question the true beneficiaries of the proposed transaction, and the extent to which shareholders, employees and the patients and communities they serve will be made to pay the long-term price for excessive short-term risk-taking by corporate insiders and controlling shareholders."

Ms. Weingarten asked that both companies answer the concerns of the AFT before any final approval on the transaction is taken.

In response, Rachel Seifert, executive vice president and general counsel at CHS, wrote that the proposed transaction "will serve the best interests of all stakeholders." She also said any litigation challenging the CHS-Health Management merger will likely not be fruitful because it was negotiated at arms' length. Ms. Seifer also emphasized that "Glenview Capital Management had no role whatsoever in negotiating the terms of the deal."

AFT mostly represents teachers but also advocates for many nurse and healthcare professionals who are members. According to a Wall Street Journal report, AFT members are involved in public pension plans worth $1 trillion. Those plans hold $68 million and $34 million in CHS and Health Management stock, respectively.

Health Management shareholders will vote on the pending CHS-Health Management deal on Jan. 8, 2014. At least 70 percent of Health Management owners must agree to the merger before it closes.

More Articles on CHS and HMA:
HMA Shareholders to Vote on CHS Deal in January
HMA Loses $97M in Q3 as New Board, Glenview Approve CHS Merger
DOJ Investigations, Poor Admissions Drag Down CHS' Q3

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