Cano Health, a value-based primary care provider for seniors, has found itself embroiled in a boardroom drama after three of its board members publicly resigned last week in protest of what they said was poor corporate governance.
The Florida-based chain’s stock plummeted to below $1 a share following a scathing press release issued by one of the members: Barry Sternlicht, the billionaire CEO of Starwood Capital Group, and an early investor in Cano.
“I have never witnessed such poor corporate governance at any company, let alone a public company, and I have been involved in at least nine and served as Chairman or CEO of six,” Sternlicht wrote in the release, which called for the replacement of Cano CEO Marlow Hernandez.
Cano has grown since its founding in 2009 to operate more than 170 centers in 9 states. The company went public in 2021 through a $4.4 billion merger with a special purpose acquisition company, but has since struggled financially.
The company lost more than $426 million last year, and planned to “significantly reduce” investments in 2023 in the face of lower-than-anticipated patient utilization rates, according to the company’s most recent annual financial filing.
Cano’s stock has dropped almost 80% in the past 12 months, and tumbled further on Friday following Sternlicht’s press release. Sternlicht also announced his resignation from the board in the release, citing the company’s “financial deterioration.”
“Unfortunately, I can no longer lend my name and reputation to the Company, nor support actions of the Board and Marlow Hernandez, which I believe are not in the best interest of stockholders,” Sternlicht wrote.
He noted that Cano received more than $1.4 billion in gross proceeds when it went public, including $800 million from private placement investors. But “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 said, adding that the company is now saddled with a “crippling debt burden.”
Two other board members, Elliot Cooperstone and Lewis Gold, resigned along with Sternlicht. Cooperstone is the founder and managing partner of private equity firm InTandem Capital Partners, and Gold is chairman of the board at behavioral health company Advanced Recovery Systems.
The three board members plan to create a group to enact changes at Cano, including replacing Hernandez, according to a filing with the SEC. Together, the three hold almost 36% of Cano’s stock.
Cano responded to the allegations in a statement late last week, calling Sternlicht’s press release “misleading,” “reckless” and “irresponsible.”
“We are disappointed that three directors chose to resign due to what we believe is their focus solely on the short term,” the company said. “We strongly disagree with their representations about the Company and their assessment of Dr. Hernandez's performance.”
The boardroom shakeup comes as primary care chains find themselves at the center of a recent acquisition frenzy, as large retailers like Amazon, Walgreens and CVS shell out billions to buy the providers.
CVS was in acquisition talks with Cano late last year, but discussions fell through and the retail health giant pivoted and acquired Oak Street Health for $10.6 billion instead.
