Brookdale Blows Up

Talk about missed opportunities. For the past 12 to 18 months, or much longer depending on which “process” you were talking about, Brookdale Senior Living has been looking to do a strategic capital event, which everyone took to mean a sale of the company to the highest bidder. The problem has been the phrase “highest bidder,” as the price a bidder would be willing to pay kept falling throughout the process, and the longer the process went on, the lower Brookdale’s stock price fell, which resulted in lower bid prices, and the cycle just continued until the fiasco that unfolded yesterday.

In the middle of the night, Brookdale issued a press release disclosing that they would hold their fourth quarter 2017 earnings call at 9:00 am the following morning, with the earnings release coming at the same time. Never have we seen nine hours separating announcement from actual time of earnings call. Talk about poor corporate governance and lack of transparency. The news was huge. The “process” was terminated, with the last bidder in at $9.00 per share, possibly going to $11.00 subject to “conditions.”

The board wisely rejected the offer, which it had to do given the stock was trading near $9.00. If they had known the price would plunge 20% they might have had a different mindset. But the earnings call was the shortest we have ever seen from Brookdale, and with all the problematic announcements, that was a shock. Were analysts too overwhelmed to cohesively come up with questions? Or were they shut down?

And then the executive shuffle. Andy Smith is out as CEO, with CFO Cindy Baier taking over the CEO spot. She is an accountant by trade, and rarely does this work, especially at a company such as Brookdale. Bryan Richardson, EVP and Chief Administrative Officer is out, and he will not be replaced. Meanwhile, as far as we know, the company is still looking for a COO, which would seem to be a somewhat important job given operations have not been going too swimmingly.

So, an accountant as CEO, who will still be CFO until they find a new CFO, and no COO, which they are looking for. And you wonder why the pricing continued to drop? Oh, and Dan Decker, the Executive Chairman of the Board, who was brought in to basically run the “process,” has resigned from the board, as has William Petty. Not a great legacy to leave behind.

The shares tanked by more than 20%, hitting a low of $6.72. Some people believe it will ultimately fall to the $4.00 to $5.00 range before it all settles out. A few weeks ago, that would have been a crazy thought. Today, anything is possible with this company that has been so horribly managed for the past few years, we are surprised the hedge funds were so heavily invested.

About the only good news we could see was that its same-community weighted average senior housing portfolio census increased by 10 basis points from the third quarter of 2017, better than many of its peers. And it looks like the company’s $316.3 million of 2.75% convertible notes, due in four months, will not be converting after all. What a surprise. We hope this becomes a Harvard Business School case study in how to destroy shareholder value by making preventable mistakes. Remember when Brookdale traded at $39 per share. Who wants to remember?

 

8 comments on “Brookdale Blows Up

  1. As a Brookdale employee and stockholder, I wish the price was back at 39.00 and that the changes had been made sooner rather than later. Senior leadership needs to be innovative and forward thinking…

  2. After those disastrous YOY results, I believe we are seeing the “savior effect” in full force and the future that holds for Cindy Bair (see Barra (GM), Mayer (Yahoo!), Fiorina (HP), etc.) That aside and what it means for the future of Brookdale, it depends on the board’s support and authority given to Bair.

    Brookdale now joins just 4.3% of Fortune 500 companies with a female CEO. For a company with the majority of staff in the community as women, this could be leveraged as a real cultural change for Brookdale. The culture of Brookdale must change to be a culture of innovation, empowerment and progress. In fact, they should take this opportunity to be a real disruptor and leverage their growth model to do something far more bold than anyone expects.

    My fear is Brookdale’s fear level and a lack of ownership for solid decision-making. This continuous lack of transparency is fear. Even the announcement of Bair was done through fear and feels very lazy. This makes me question the support Bair really has from within (we all know the support she’ll have outside of Brookdale will be limited at best). I’ll be rooting for Bair on the sidelines, but I will not be adding them back into my portfolio any time soon.

    1. Amber, many good points, and I agree that having a woman at the helm where 80% of the employees are women, not to mention the residents, could be a big plus. But she has got to walk the walk. If she gets the support of employees, the real support from the board will come, as will the investors. But….her lack of any operating background in seniors housing is a problem, especially with no chief operating officer and no separate CFO. She has a difficult task ahead.

      1. Steve, I could not agree more (and if I knew how to edit original comments, I would).

        The more that I read the more I feel the wash/rinse/repeat analogy coming on with strategy: “…As baby boomers continue to age and the industry rebounds over time, Brookdale will be well-positioned to return to growth and capture new opportunities.In 2018, we plan to further cut G&A expenses, enhance our real estate portfolio strategy and shift our efforts to winning locally while leveraging our industry-leading scale.” – Baier, Nashville Business Journal.

  3. As a CEO of a mid-western, highly rated, mid-sized senior system the Brookdale fiasco has been interesting to watch. Investors must be weary of the type of growth undertaken by Brookdale, as it often proves to be the antithesis of value creation. Remember Sunrise and Erikson of the early 2000’s? Value come not only from size and scale, it comes from a resident-centric approach to value and quality.

    Seems like we have all seen this picture before.

    1. Yes, history often repeats itself, and I never understand why people don’t learn from it. I would guess it has a lot to do with egos and investors wanting more. Somewhere along the way, the residents get forgotten sometimes, and that becomes the problem.

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