Tenet Healthcare Corp (NYSE:THC) is planning on giving 2,000 layoff notices to employees. In addition, the company is looking to divest over $1.0 billion in assets, which is planned to be completed by selling non-core assets and reducing business costs.
These details came straight from the mouth of the CEO and executive chairman of the company, Ron Rittenmeyer, at J.P. Morgan’s Healthcare Conference in San Francisco, which took place from January 8 to January 11.
The announcement was not a total shock; there was already a plan to reduce business operating costs and cut jobs. Back in October, Tenet announced it would reduce annual business operating costs of $150.0 million and reduce one percent of its workforce, or 1,300 employees. Before this announcement was made, there was a possibility that Tenet was going to be bought out. This would have resulted in the new owner of the company looking into making the company efficient.
This recent announcement of job cuts and reducing assets is taking the company’s present strategy a step further. All this is taking place to attempt to put the company in a better position for future growth and possible success.
How Will Tenet Healthcare Achieve Its New Business Targets?
There have been no details released about which departments will see job cuts or when they will take place. At this point, the only announcement is that job cuts will take place.
However, there are some clues given to investors and the public. From the $1.0 billion expected to be saved by divesting assets, $250.0 million will come from business cost saving—previously, the amount was $150.0 million in annual cost savings. This would include no longer paying for employee salaries and other related overhead costs. Tenet’s target time period is by the end of 2018. Therefore, it is safe to say that the job cuts are expected to be completed by the end of the calendar year.
In addition to the $250.0 million, the company will look to lower its financial leverage on its balance sheet. The intent here is to lower the costs associated with carrying an outstanding loan.
The day the news broke of this new cost-reduction strategy, the stock dropped by a few percentage points. This is a great real-time indicator to consider how things could turn out. Since the previous news of job cuts was known and now that an even bigger cost reduction strategy is in place, the problem within the company is larger than first thought.
Since all of this information is public, there is no real negotiation power held by Tenet. Yes, the assets are owned by Tenet, but if a lowball offer is on the table, it may be agreed to in order to achieve the goal of hitting the $1.0-billion mark in total divested assets.
In the future, the company could look a lot different because of its approximately $1.5-billion market cap. This would mean that divested assets would be equal to roughly half of the market cap value of the company. The result would be that THC would have a smaller market share and operate as a smaller business entity.
“Tenet to lay off 2k employees, divest $1B+ in assets in strategic growth, cost reduction initiatives,” Becker’s ASC Review, January 9, 2018.
“Tenet Highlights Strategic Growth and Cost Reduction Initiatives at J.P. Morgan Healthcare Conference,” BusinessWire, January 8, 2018.
“After calling off sales talks, Tenet Healthcare cutting 1,300 jobs,” Dallas Business Journal, October 27, 2017.