Concerned Shareholders of Cano Health Issue Letter Regarding its Commitment to Turning Around the Company
02 Junho 2023 - 12:45PM
Business Wire
Encourages Fellow Stockholders to Help
Initiate the Turnaround by WITHHOLDING
Support for Dr. Alan Muney and Kim Rivera – the Only Directors
Standing for Re-Election at the Annual Meeting
Reiterates the Group is Awaiting a
Resolution of its Litigation to Compel Cano to Reopen Window for
Nominating Director Candidates and Making Proposals at the Annual
Meeting
Elliot Cooperstone, Lewis Gold and Barry Sternlicht today
released the following letter to Cano Health, Inc. (NYSE: CANO)
stockholders:
Fellow Stockholder,
The three of us – Elliot Cooperstone, Lewis Gold and Barry
Sternlicht (collectively with our affiliates, the “Group” or “we”)
– hold an approximately 35% equity stake in Cano Health, Inc.
(“Cano” or the “Company”), making our Group the largest stockholder
of the Company. The three of us served on Cano’s Board of Directors
(the “Board”) until this spring, when it became clear to us that
Chief Executive Officer Dr. Marlow Hernandez and his boardroom
allies had tuned out our consistent calls for better corporate
governance, enhanced disclosure practices, improved capital
allocation and financial controls, and a refined strategy. We
contend Dr. Hernandez and Cano’s management-friendly directors
demonstrated unconscionable levels of arrogance and intransigence
by forming a “Shadow Board” that excluded us.1 This took place
despite their ardent championing of actions that precipitated
Cano’s stock price declining by more than 90% since the Company
went public in June 2021.2
Rather than allow Cano’s current leadership to continue running
the organization into the ground, we have begun a campaign – for
the benefit of all stockholders – to turn around the Company from
the outside. We have sought to lay a foundation for this turnaround
over the past two months by doing the following:
- Filing proxy materials to solicit WITHHOLD votes against the two
management-friendly members of the Board up for re-election at the
2023 Annual Meeting of Stockholders (the “Annual Meeting”) on June
15, 2023: Dr. Alan Muney, Chair of Cano’s Compensation Committee,
and Kim Rivera, Chair of Cano’s Nominating & Corporate
Governance Committee. We urge you to send a clear message at this
year’s Annual Meeting by voting WITHHOLD on Proposal 1 (Election of Dr. Muney
and Ms. Rivera) on any proxy card received (GREEN or WHITE).
- Submitting a notice to Cano to nominate two highly qualified,
independent candidates – Joseph Berardo, Jr. and Guy P. Sansone –
for election to the Board at the Annual Meeting. Messrs. Berardo
and Sansone possess significant healthcare services experience as
well as backgrounds in corporate governance, capital allocation,
transactions and strategic planning.
- Submitting a proposal to Cano to give stockholders the
opportunity to vote on the removal of Dr. Hernandez from the Board
for cause at the Annual Meeting (the “Removal Proposal”).
- Urging Cano’s Board to voluntarily reopen the window for
nominating director candidates and making business proposals at the
upcoming Annual Meeting – a seemingly logical step given the
extraordinary circumstances at the Company.
- Ultimately filing a lawsuit against Cano in the Delaware Court
of Chancery to compel the Company to reopen the window for
nominating director candidates and making business proposals at the
upcoming Annual Meeting. Your ability to vote on (i.) the election
of our two director candidates and (ii.) the Removal Proposal is
dependent on the success of this lawsuit. A ruling is expected
early this month.
The fact that three of us are investing our own capital,
resources and time into this campaign should reinforce that we are
committed to initiating a turnaround and are squarely aligned with
you. As outlined in the subsequent sections of this letter, we have
a deep understanding of the challenges at Cano and possess a clear
vision for turning around the Company. We believe our ideas
represent a stark contrast to the “state of denial” that Dr.
Hernandez and his close associates seem to be operating in.
We Believe Dr. Muney
and Ms. Rivera Bear Meaningful Responsibility for the State of
Cano
We believe that Dr. Muney and Ms. Rivera must be held
responsible for Cano’s corporate governance failures, compensation
and human capital issues, and ongoing strategic and financial
lapses given their leadership roles on relevant committees. Dr.
Muney and Ms. Rivera have blindly sided with Dr. Hernandez and the
supposed “independent” Chairman Solomon Trujillo despite numerous
related-party transactions and sustained value destruction, raising
questions about their independence, credibility and fitness to be
stewards of your capital.
From our perspective, Dr. Muney and Ms. Rivera bear at least
partial responsibility for the following strategic missteps and
entrenchment maneuvers at Cano:
- Significant Value Destruction – Dr. Muney and Ms. Rivera
have supported Dr. Hernandez every step of the way, even as the
Company’s stock has declined by more than 90% and underperformed
significantly relative to the broader market and relevant
indices.
- Deteriorating Operating Performance – Cano just reported
another quarter of disappointing results – including poor EBITDA at
a mere $5 million – that reinforce Dr. Hernandez is pursuing a
failed strategy (one which we expressed reservations about). The
Company’s alarmingly meager cash balance further underscores the
current Board’s poor supervision of Dr. Hernandez. In recent
materials, the incumbent directors proudly and bizarrely cite
having achieved consecutive quarters of positive cash flow,
conveniently ignoring that the Company has declined from over $100
million of EBITDA at the time of Cano’s public listing, despite
completing $100 million in acquisitions over the past two
years.
- Financial Control Issues – Cano was unable to
file its 10-K on time for both fiscal year 2021 and fiscal year
2022, which has surely contributed to the destruction of
significant stockholder value. Cano’s financial control issues
raise concern about the abilities of Dr. Muney and Ms. Rivera to
meet public market requirements as members of the Board’s Audit
Committee.
- Related-Party Transactions – Dr. Hernandez has a track
record of entering into concerning transactions with family members
and loan arrangements with Cano executives, including a $30 million
loan received from Robert Camerlinck in February 2022, who later
that year was appointed as Cano’s Chief Operating Officer. As
members of the Audit Committee, Dr. Muney and Ms. Rivera have a
duty to review all related-party transactions for potential
conflicts of interests.
- Reckless Capital Allocation and Concerning
Transactions – Cano has burned through hundreds of millions of
dollars of cash and accumulated ~$1 billion in net debt since its
public listing in 2021. In a seemingly desperate effort to
temporarily increase Cano’s stock price in late 2022, Dr. Hernandez
locked the Company into a deal with MSP Recovery Inc. (“MSP”) for
$57.8 million without involving the Company’s CFO or bringing it to
the Board for approval. Cano is now carrying a ~$60 million
receivable asset from MSP, which is unlikely to ever be realized by
the Company.3 The Audit Committee’s lack of oversight of
management’s financially irresponsible actions (and the MSP
transaction, in particular) are representative of the Company’s
disregard for sound governance and financial controls.
- Creation of the “Shadow Board” – Dr. Muney and Ms.
Rivera spearheaded the formation of the “Shadow Board” that
wrongfully excluded our Group from normal Board responsibilities
and refused to meaningfully discipline Dr. Hernandez despite his
borrowing, conflicted personal loan activities and immediate family
related-party transactions having been found in an investigation by
outside counsel to be “egregious violations of the Company’s code
of conduct.”
- Human Capital Management Issues – Cano has lost
countless key executives in recent months, including its President
– Coding, Billing and Credentialing, Chief Administrative Officer
and Director of Quality. In our view, the inability to focus on
culture improvements falls on Dr. Muney, who as Chair of the
Compensation Committee has failed in his oversight of the Company’s
strategies and policies related to human capital management, and
Ms. Rivera, who as Chair of the Nominating & Corporate
Governance Committee, has failed to set policies that limit
nepotism.
- Appointment of Solomon Trujillo as “Independent”
Chairman – We believe Mr. Trujillo’s lack of healthcare
industry experience, deep ties to Cano’s C-suite and
well-documented history of insider deals make him unfit to serve as
the Company’s Chairman. Ms. Rivera, as Chair of the Board’s
Nominating & Corporate Governance Committee, has disregarded
stockholders’ concerns by supporting the appointment of Mr.
Trujillo as Chairman.
Our Group Possesses a
Vision for Enhancing Stockholder Value and Turning Around
Cano
Our Group has thought critically about how Cano can evolve from
being a founder-dominated business to a mature, well-governed
company. While the first step involves our fellow stockholders
WITHHOLDING votes against the
re-election of Dr. Muney and Ms. Rivera at this year’s Annual
Meeting, we have a clear vision for continuing to enhance value for
Cano stockholders. Our vision includes:
- Enhancing Cano’s Governance Policies: We believe the
Board should prioritize a series of governance enhancements that
will de-risk Cano, improve its corporate governance profile and
help protect stakeholders’ best interests. These include:
de-classifying the Board; adopting a majority voting standard for
the election of directors and a director resignation policy;
permitting stockholders to act by written consent, call special
meetings, remove directors and amend the Bylaws with simple
majority; and adopting a clear policy to limit the number of
interconnected directors on the Board. We also recommend updating
the Nominating & Corporate Governance Committee Charter to
include comprehensive annual reviews of member relationships and
qualifications.
- Re-Focusing Cano’s Strategy: We believe Cano can
maximize stockholder value by re-aligning and narrowing its
strategic focus, building a more attractive business and
concurrently exploring strategic alternatives. The Board should
sell non-core assets (including those outside of Florida), which
will allow leadership to devote more resources to the high-value,
profitable Florida Medicare Advantage business and drive renewed
organic growth in the core Florida market.
- Establishing a Clear Capital Allocation Framework: We
believe a reconstituted Board and leadership team must take
immediate steps to rectify the reckless capital allocation actions
that have caused the Company to burn through an immense amount of
cash. To begin to regain the trust of stockholders, we believe the
Board needs to transparently lay out capital allocation priorities
that include investing in the Florida Medicare Advantage business
and core opportunities, prioritizing debt reduction based on cash
generated from non-core asset sales and opportunistically
re-purchasing shares based on market conditions and cash
flows.
- Improving Human Capital Management and Transparency:
Installing new leaders and reconstituting the Board with directors
who prioritize transparency and accountability will help ensure
that employees understand Cano will no longer be run for the
benefit of a select few insiders. This will help improve morale and
ultimately employee retention, which has been a significant issue
for Cano over the past 18 months. Implementing governance
enhancements and tying compensation to value creation will also
help ensure that management is held accountable and fully aligned
with stockholders’ interests.
- Installing High-Integrity Management and Reconstituting the
Board: In the long-term, and in the event we are successful in
our litigation, we believe Dr. Hernandez should be replaced with a
high-integrity, well-credentialed CEO. From our Group’s
perspective, the ideal CEO candidate would possess healthcare
services operating experience and prior public company experience
with an outstanding history of sound corporate governance and a
record of balancing the interests of employees, partners and
stockholders above their own. If we’re successful in compelling the
Company to reopen the nomination window, we have already identified
and nominated two highly qualified, independent candidates –
Messrs. Berardo and Sansone – who can help start a turnaround at
Cano. Both candidates have significant healthcare services
experience, corporate governance expertise, capital allocation and
transaction experience, and a track record of sound strategic
planning.
Your Vote is
Critically Important – Take Action Today
As stockholders of the Company, you have an opportunity to have
your voice heard at the June 15th Annual Meeting. Voting
WITHHOLD on Dr. Muney, Chair of
Cano’s Compensation Committee, and Ms. Rivera, Chair of Cano’s
Nominating & Corporate Governance Committee, is the first step
toward turning around our Company. This will send the message that
you are dissatisfied with the status quo and believe change is
urgently needed at Cano.
We will continue to press for Board and leadership changes
following the Annual Meeting to help initiate an enduring
turnaround that can maximize value for all Cano stakeholders.
In the meantime, we urge stockholders to vote WITHHOLD on Proposal 1 (Election of Dr. Muney
and Ms. Rivera) on any proxy card received (the GREEN or WHITE
proxy card).
Sincerely,
Elliot Cooperstone
Lewis Gold
Barry Sternlicht
1 From March 17, 2023 through March 30, 2023, the Special
Committee abandoned all pretenses that it was formed simply for the
purpose of handling Mr. Sternlicht’s potential resignation and
instead used the vast authority set forth in its charter to
sideline our Group, effectively creating a “Shadow Board” of the
Company that excluded our Group. In our view, this “Shadow Board”
precluded our Group from discharging our fiduciary duties and
participating in the oversight of the Company.
2 Since the Company went public in June 2021 to market close
March 30, 2023, the unaffected closing price before Barry
Sternlicht’s resignation from the Board became public.
3 MSP recently announced that if it does not file its 2022 10-K
and first quarter 2023 10-Q by June 20, 2023, it will be delisted
from the NASDAQ – making Cano's receivable worthless and therefore
forcing a full write-down.
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version on businesswire.com: https://www.businesswire.com/news/home/20230602005199/en/
Investors:
HKL & Co., LLC Peter Harkins, Jr. / Jordan Kovler Toll-Free:
(800) 326-5997 CANO@hklco.com
Media:
Longacre Square Partners Charlotte Kiaie / Greg Marose
ckiaie@longacresquare.com / gmarose@longacresquare.com
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