Hedge fund to Healthways: Boot Leedle now

10% owner wants company to spin out Silver Sneakers, shut down international division

The hedge fund manager who in October said he wanted to talk to Healthways directors about the company's leadership is ratcheting up the pressure, saying he wants President and CEO Ben Leedle out of office immediately.

In a letter to the board of Franklin-based Healthways, North Tide Capital's Conan Laughlin says Leedle has destroyed shareholder value during his 10-year reign via "a pattern of 'hype' and disappointment." Laughlin points out that Healthways is on track to miss its own earnings-per-share targets for the third year in a row and the sixth out of 10. Because of that, he adds, it's time for a change and a CEO that can restore the company's credibility with analysts and investors.

"The Board’s tolerance for Mr. Leedle’s performance is perplexing, and any conclusion other than 'enough is enough' is unacceptable," Laughlin wrote this weekend. "With the latest disappointment, we believe Mr. Leedle has lost all remaining credibility in the investment community, and the Board needs to recognize what that means from a shareholder value standpoint looking forward. In fact, it seems clear to us that the magnitude of the recent sell-off was more an indictment of the management team and its inability to deliver on expectations, than a material degradation in the business or long term growth opportunity. The stock lost more than a third of its value on just an 8 percent reduction in 2014 consensus revenue and 12 percent reduction in consensus EBITDA."

In addition to Leedle's ouster, Laughlin — whose firm owns almost 10 percent of Healthways — wants the company's board to split off its SilverSneakers business, which markets wellness and exercise fitness programs to seniors. Laughlin says the unit, which is on track to finish the year with about 9 million members, could be worth as much or more than Healthways as a whole is today.

Laughlin also wants Healthways to give up its efforts to take its business global. That division — which has won contracts in Germany, Brazil and Australia, among others — has failed to consistently turn a profit. Instead, Laughlin adds, the company should refocus its efforts on the still-promising U.S. population health management market.

Another shot from North Tide's managing member is the COO situation at Healthways: Laughlin points out that the company has had four COOs under Leedle and none since Thomas Cox resigned in July of last year.

"We can’t understand how the Board, or any objective observer, could not see this as the symptom of a problem at the CEO position," Laughlin wrote. "Given the repeated operational shortfalls at the company over the last decade, we see this as a glaring red flag."

A spokesman for Healthways did not return a call Monday for comment on North Tide's letter, which is available here.

The credibility issue North Tide is looking to address dates back several years. The Post's January 2012 cover story tackled the topic of Leedle's standing with the investment community, saying: "Credibility is a very precious commodity. You can lose it in five seconds and spend five years trying to get it back even if all the puzzle pieces fall back into place. The big problem for Healthways investors is that the pieces still appear to be somewhat scattered."

On Monday, shares of Healthways (Ticker: HWAY) were off almost 2 percent to $13.76. Thanks to a tremendous run from $11 in April to $22 in September, they are still up more than 25 percent in 2013.