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Community Hospitals Matter: Billionaire Investor

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Community Health Systems Inc. may be on life support, but its largest shareholder isn’t ready to pull the plug.

That may be little comfort to other investors who bought in three years ago, when shares were trading above $50. It opened at just over $3 today.

But Shanda Asset Management Holdings Chairman Tianqiao Chen said in an interview the hospital chain is on the right track and a turnaround is a matter of when, not if.

(Related: Next U.S. Restructuring Epidemic: Sick Health Care Companies)

“I think of it as a 10-year investment, 20-year investment, so what?” said Chen, who owns about 24% of the company. “Because we give them the confidence, give them time, and give them the safety, I believe at the end of day, we can have decent return.”

Representatives for Community Health didn’t immediate return requests for comment.

The billionaire, based in Menlo Park, California, knows the ups and downs of running a public company: A dozen years ago, Shanda was the largest internet company in China. In 2004, it became the largest U.S. initial public offering of a Chinese Internet company at that time. But the pressure was taking its toll on Chen, who later decided to take his company private and turn his focus to philanthropy. He allocated $1 billion for brain research.

Community Health’s social impact was a major motivator for Chen’s investment. “No other business has more impact on a community than a community hospital,” he said. The management, led by Chief Executive Officer Wayne Smith, “is the best operational team in the industry, so I have full confidence.”

The Franklin, Tennessee-based company recently gained a few more years of leeway after a debt exchange pushed its near-term debt obligations to 2023 and 2024. The company’s debt now stands at $15.1 billion, according to Bloomberg data.

Like its peers, the company also faces the effects both of increased resistance to the Affordable Care Act Medicaid expansion program and of low Medicaid reimbursement rates on revenue.

Chen says he boosted his stake gradually as shares got cheaper — Shanda first disclosed its position in June 2016, Bloomberg data shows. The stock has dropped about 70% since then, and underperformed peers.

The investor admits that Community made “a mistake” when it shelled out $7.6 billion for Health Management in 2013, taking on too much debt. However, he sees their divestiture and deleveraging strategy as the right one, and is willing to help protect the company from potential activists. Other investors, like ASL Strategic Value Fund, have called for the CEO’s ouster.

Community Health is Shanda’s second-largest holding, after LendingClub Corp. The online lender, which is down 71% since its 2014 IPO, has been struggling with investor questions about its business model. In 2016, founder Renaud Laplanche and other executives resigned amid a scandal.

Chen, who holds a 23% stake in the company, believes the current management team has the right experience, and recent appointments give him confidence in its future. The online lending marketplace and the potential of decentralized consumer lending is “huge.” LendingClub has barely scratched the surface, he notes.

“The big difference from other financial investors is: we are very patient,” Chen said. “Secondly, I am an entrepreneur. I will always think ’if I am CYH chairman, what should I do? If I am LendingClub chairman, what should I do?’ It takes time, but I have confidence.”

—With assistance from Tom Metcalf and Felice Maranz.

— Read Ailing Hospitals Face Reckoning as Investor Agitation Growson ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on Facebook and Twitter.


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