If you’re one of the millions of viewers patiently waiting for the newest episode of HBO’s Succession to air on Sunday, don’t worry — we have some real-life boardroom drama to tide us over in the meantime.
The aforementioned drama is unfolding at Cano Health, a senior-focused primary care provider that went public in 2021 through a $4.4 billion SPAC merger. Last week, three of the company’s board members resigned in protest of Cano’s governance strategy. They also announced they will form a group to enact comprehensive changes at Cano, including replacing the CEO.
The Miami-based company’s stock has dropped 80% over the past 12 months. Last Friday, it plummeted to below $1 per share following a blistering press release issued by Barry Sternlicht. He is the billionaire CEO of Starwood Capital Group and was an early investor in Cano.
In the press release, Sternlicht announced his resignation from the board and expressed that he has been “extremely troubled” by the company’s “poor operating decisions and performance” over the past two years.
He pointed out that Cano had received about $1.49 billion in gross proceeds when it went public, and those proceeds included about $800 million from private placement investors including himself, as well as blue chip investors like Fidelity, Third Point Capital, Maverick Ventures, BlackRock and Owl Creek Partners.
“Fast forward to today, this management team has expended nearly all this cash and the company has not enjoyed any demonstrable improvement in its core profitability,” Sternlicht wrote.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
Cano’s governance structure has caused the company’s stock price “to be decimated, dropping over 90% from its debut,” Sternlicht added. He also lamented that the company is “now saddled with a crippling debt burden.”
Sternlicht wrote that he had directly communicated his concerns to his fellow board members and Cano CEO Marlow Hernandez “on numerous occasions,” only to be ignored. He called for Hernandez to be removed from his position as chairman and CEO, calling his continued tenure “harmful to the interests of stockholders and to Cano employees.”
Two other board members resigned along with Sternlicht — Elliot Cooperstone and Lewis Gold. Cooperstone is the founder and managing partner of private equity firm InTandem Capital Partners, and he previously served as CEO of Prodigy Health Group, a health plan services company that Aetna acquired in 2011. Gold is co-founder and chairman of the board at behavioral health company Advanced Recovery Systems.
In a 13-D filing with the Securities and Exchange Commission, Sternlicht said that he, Cooperstone and Gold have entered into a group agreement in which they plan to “act together to pursue change” at Cano, “including, but not limited to, the replacement of the CEO, sale of non-core assets and enhancement of shareholder value.”
Cano released a statement on Friday in response to its board members’ resignations. The company wrote that it is “disappointed that three directors chose to resign due to what we believe is their focus solely on the short term.” Cano also wrote that it “strongly disagree[s] with their representations about the company and their assessment of Dr. Hernandez’s performance.”
“While we fully recognize the recent disappointing share price performance, our work has supported our strong confidence in the company’s mission and fundamentals, our commitment to driving operational and financial improvements and our belief in the company’s continuing prospects for long-term shareholder value creation,” the company wrote.
Cano’s boardroom debacle comes amid a time in which primary care companies are ripe targets for acquisition. Many of Cano’s rival companies were recently acquired for billions of dollars.
For example, Amazon announced its plans to buy One Medical for nearly $4 billion last summer, Walgreens‘ VillageMD bought Summit Health for nearly $9 billion in January, and CVS disclosed its plans to acquire Oak Street Health for $10.6 billion in February.
Last year, media reports emerged saying that Cano was an acquisition target of CVS, but the retail pharmacy giant ended up walking away from the deal.
In the coming months, it will be interesting to watch whether Cano is able to get its act together to become a more attractive acquisition target. If what its three former board members said is true, the rehabilitation process might take a while.
Photo: wenjin chen, Getty Images
