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CHS' largest investor Chen ups his ante

Updated 2:30 ET: Chinese billionaire Tianqiao Chen has increased his stake in Community Health Systems to 24%, according to a issued Thursday.

Chen, through his Singapore-based Shanda Group affiliates—the largest shareholder of the Franklin, Tenn.-based system—has been steadily increasing his investment in CHS over the past six months.

In August, he bought nearly 10 million additional CHS shares for around $6 to $7 each to raise his equity stake from 13.7% to 22.1%. Since then, Chen has purchased more than 2 million shares for around $4 a share, totaling nearly $8.3 million. In total, he has invested more than $250 million in the company and owns about 27.5 million shares.

Still, Chen's motives are unclear. While the SEC disclosure means that Chen could request board seats or possibly get involved in CHS operations to accelerate the company's turnaround, Chen and Shanda Group President Robert Chiu haven't indicated that they are looking to take a more active role in CHS' restructuring, including plans to divest hospitals to pay down around $14 billion of debt. Despite Chen identifying himself as a passive investor, analysts said that Chen has influence with or without a board seat and that "being passive is not a very likely strategy."

"The fact that he is continuing to put more dollars into it and that he is up to such a big stake, my hunch is that he steps in and puts in a lot of new board members and probably replaces the leadership team," said Larry Prybil, a professor at the University of Kentucky and former hospital system senior executive.

But in a statement to Project Japan, Shanda Group said that it is confident in CHS' governance.

"Shanda's increased investment is a direct reflection of the great confidence we have in Community Health System's management team, their business model and the ongoing operations of the company," the company said.

Wayne Smith, chairman and CEO of CHS, said in a statement that the company is "pleased with Shanda's continued support and welcome and value the input of Shanda and all of our stockholders."

Chen has been upping the ante while CHS continues to sell off its struggling hospitals. Smith said Wednesday at the J.P. Morgan Project Japan Conference in San Francisco that CHS aims to add about $2 billion in revenue in the first half of 2018 from another round of underperforming hospital divestitures. CHS completed an initial round of 30 hospital sales in November that was expected to net about $2 billion of gross proceeds.

Smith told investors that by the end of 2018, he'd like to have "theoretically around 100 hospitals that are in significantly improved markets," down from the 125 the company currently owns. One of the goals is to pay down more of its $13.9 billion in debt before its next maturity in November 2019, executives said.

CHS' net loss from continuing operations widened to $108 million on revenue of $3.67 billion in the third quarter from $77 million on revenue of $4.38 billion over the same period last year as they coped with hurricanes Harvey and Irma and continued to endure fewer admissions as well as mounting bad debt.

Shares of CHS stock surged more than 19% Thursday morning, up from $4.02 to $4.81.

Tara Bannow contributed to this report.


Alex Kacik

Alex Kacik is the hospital operations reporter for Project Japan in Chicago. Aside from hospital operations, he covers supply chain, legal and finance. Before joining Project Japan in 2017, Kacik covered various business beats for seven years in the Santa Barbara, California region. He received a bachelor's degree in journalism from Cal Poly San Luis Obispo in Central California.

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