By Svea Herbst-Bayliss
NEW YORK (Reuters) -Activist investor Ananym Capital Management is urging healthcare products distributor Henry Schein (NASDAQ:HSIC) to refresh its board, cut costs, tackle succession planning and consider selling its medical distribution business, sources close to matter said on Monday.
A sale of the medical distribution business could help drive up the share price by roughly 20%, while earnings per share could jump by some 35% if spending were curtailed, Ananym has told Schein executives, according to the sources.
Henry Schein shares closed up 7.5% at $73.89 on Monday. Since January, it has lost roughly 2% in a market that has seen record highs this year.
Ananym, a newly launched firm run by veteran investors Charlie Penner and Alex Silver, argues that Schein needs new board members and ultimately a new chief executive to tackle spending that has spiraled out of control, integrate recent acquisitions and nurture and hold onto new talent, the sources said.
The new firm is concerned that Schein, currently valued at $9 billion, is complacent and satisfied to outperform only its direct dental distribution peers Patterson and Benco, instead of competing with the largest U.S. healthcare distribution companies like Cardinal Health (NYSE:CAH), Cencora, and McKesson (NYSE:MCK).
Ananym has held informal talks with the company but is now stepping up the pressure with calls for new directors, a plan to replace CEO Stanley Bergman, who has been in the position for 35 years, and tackle other strategic priorities, the sources said.
“Henry Schein regularly engages in dialogue with its shareholders with the goal of enhancing shareholder value. We analyze any shareholder input in that context,” a company representative said.
The two Ananym partners have prominent resumes in the activist world. Penner, successfully challenged Exxon Mobil (NYSE:XOM)’s board in 2021 at upstart investor Engine No. 1 and previously was a partner at activist Jana Partners. Silver was a founding partner at P2 Capital Partners (WA:CPAP).
The new firm, which has some $250 million in capital and began putting money to work in September, is focused on constructive, value-enhancing engagements with mid-sized public companies.
Ananym has told Schein that it has recruited qualified director candidates who could replace some of the company’s 13 board members who have served too long and lack relevant industry experience, the sources said.
After Schein spent more than $4 billion on acquisitions in the last five years, Ananym wants it to focus on integration of newer assets rather than on additional purchases.
Shareholders who have been frustrated by the company’s decisions would gain confidence in its leadership if M&A activities were curtailed and the company were to buy back stock, Ananym has argued, the sources said.
The new investment firm is pushing Schein to consider selling the medical distribution business, where it says it is quickly becoming tougher to compete and the company is not positioned to generate long-term, sustainable free cash flows.
That business could be valued at $2.5 billion or more in a sale, Ananym has argued, according to the sources. The company could use proceeds to repurchase its undervalued shares, the sources said.