Tenet chose a tax-free Conifer spin-off after its 74-party auction failed to price the arm
After an 18-month review and a failed auction, Tenet decided to spin its RCM arm Conifer into a public company as the unit's adjusted EBITDA grew 26% in 2018.
What was changed
Conifer was Tenet Healthcare's revenue-cycle arm: founded in 2008 and expanded with the $235 million purchase of SPi Healthcare in 2014, it managed 17 million patient interactions and about $25 billion of net patient revenue a year. In December 2017, after a year of struggling financial performance, Tenet said it was mulling a sale of the unit amid a cost-reduction program. Weak earnings and mounting debt had put the company under investor pressure, and shedding Conifer looked like a potential stabilization move; UnitedHealth Group reportedly explored a purchase about a year later.
Tenet launched an auction in January 2018, contacting 74 parties. Nine bids came back and three finalists emerged, but their offers, the company said, 'failed to recognize the improving financial performance of Conifer.' While the review ran, Conifer's 2018 revenue topped $1.53 billion with adjusted EBITDA up 26% year over year, and Tenet staunched the bleeding — paring debt, selling hospitals and beating Wall Street expectations in the first quarter of 2019, a quarter CEO Ronald Rittenmeyer called 'a great quarter.' Conifer's first-quarter net operating revenue was $146 million.
On July 24, 2019, Tenet announced its answer: a tax-free spin-off of Conifer into an independent publicly traded company, expected to complete by the second quarter of 2021. Executives had weighed a cash sale or merger against a spin and concluded the standalone route created greater value — 'Tenet today is a significantly different company than 18+ months ago,' their investor presentation argued. Conifer CEO Stephen Mooney is stepping down while a permanent search runs, with COO Kyle Burtnett as interim chief, and minority stakeholder CommonSpirit supports the split.
Why it worked
Nine bids from 74 contacted parties all undervalued a unit whose adjusted EBITDA had just grown 26% — the market would not price the recovery, so Tenet chose to let a public-market listing do it.
A tax-free spin requires no shareholder vote, and executives judged the standalone route more value-creative than the cash sale or merger alternatives they evaluated.
Performance improved during the review itself: better results raised the floor and made the below-market bids easier to refuse.
The review began as a stabilization move against weak earnings and mounting debt; by the decision, deleveraging and hospital sales had eased the pressure enough that a standalone spin was viable.
What can be applied
If bidders won't price a unit's turnaround, a tax-free spin-off lets the market do it; improving operations during the review raises the floor for any outcome.
Aftermath
Completion is expected by the second quarter of 2021. Conifer CEO Stephen Mooney steps down while the search for a permanent replacement runs; COO Kyle Burtnett serves as interim chief. CommonSpirit, which holds a minority stake in Conifer, supports the transaction, and no Tenet shareholder vote is required. Tenet was to report second-quarter earnings on Aug. 5.