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UofP - MBA560 - Scenario Two - 06-25-06

UofP - MBA560 - Scenario Two - 06-25-06 - SCENARIO...

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SCENARIO: CARENETWEST COMPANIES, INC. COMPANY OVERVIEW CareNetWest Companies, Inc., began as a five-site, 100-bed hospital network in San Francisco. By 2002, it was a provider of eighty 100- to 500-bed, full-service, acute and general care hospitals in California, Oregon and Washington. The driving force behind the company’s growth was its dynamic Chairman and CEO, Dr. Tad Smith. A licensed medical doctor and cardiovascular surgeon, Tad garnered worldwide recognition and financial success through the development of a groundbreaking surgical technique involving valve disorders. Subsequently, Tad took on two partners—neurologist Dr. Brady Simms and anesthesiologist Dr. Bonnie Gold—and, in 1998, purchased the San Francisco network from a national hospital provider looking to exit most of the western market. By 2001, the partners were looking to expand, so they incorporated in Delaware and raised $500 million in IPO capital. Tad was nominated by the company's Board of Directors to act as both Chairman and CEO, while Brady and Bonnie, deeming their business skills insufficient to manage a corporation, returned to private practice. Using its newfound capital and marketable shares, CareNetWest ultimately acquired six smaller networks along the Interstate Highway 5 corridor stretching from San Francisco to Seattle. In 2002, with 80 locations, CareNetWest was the third largest hospital chain west of the Mississippi and traded on the New York Stock Exchange. The company's five-person Board of Directors was made up entirely of medical professionals, including four doctors and one clinical social worker with a doctorate. The Board sat no Audit, Governance, or Compensation committees, relying almost exclusively on Tad's direction in addressing corporate matters. CareNetWest Board of Directors VACANT Audit Committee Dr. Tad Smith Cardiologist Chairman of the Board VACANT Governance Committee Dr. David Wells Radiologist Dr. Judith Moore Clinical Psychologist Dr. Benjamin Wright Internist Dr. Laura Culpepper Pediatrics VACANT Compensation Committee Industry analysts had been both impressed by and guarded about CareNetWest’s level of growth in just under two years as a public company. While the company's return on equity remained above the industry norm of 15 percent, questions had been raised about the company's infrastructure and its ability to leverage current infrastructure and internal expertise to support its growth. Furthermore, at the end of 2002, corporate America headed into its first period of Sarbanes-Oxley compliance.
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THE PLAYERS Dr. Tad Smith, Chairman of the Board and CEO : A founder of CareNetWest, Tad believed his medical expertise made him an excellent executive in this industry; apparently, shareholders agreed as they twice nominated him to serve as Chairman. Indeed, Tad does well building relationships with medical professionals, granting practice privileges to well-respected doctors, and acting as the "face" of the company. Reluctant to partner but in need of assistance, Tad hired friend and investment banker Anders
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UofP - MBA560 - Scenario Two - 06-25-06 - SCENARIO...

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