Investor Calls for Sale of “Undervalued” Sun Healthcare Group

Clinton Group, Inc., the investment manager for Clinton Magnolia Master Fund, Ltd. and one of the largest investors in Sun Healthcare Group, Inc. (NASDAQ:SUNH) are calling for the company’s sale in a Dec. 12 letter to Sun’s board of directors.

“We are proud owners of the Company and believe the stock is significantly undervalued,” the letter reads, going on to point out 11.1% cuts to Medicare reimbursement rates that have “severely impacted” Sun and its peers.

“While we believe that management responded briskly with a risk mitigation plan that has been effectively communicated to investors, the stock price continues to languish and fails to reflect the true value of Sun’s operations. We believe the time has come to sell the company to a larger industry participant,” says the letter.


Sun maintains “sufficient liquidity” with a cash position of $91 million, according to Clinton’s evaluations, and the investor says the debt market is open to Sun for refinancing.

However, Sun’s stock price fell more than 75% in 2011, and nearly 10% since Aug. 1, 2011, says Clinton, “leaving the company with a market capitalization of less than $75 million” in a market that is “pessimistic about the Company’s ability to achieve its projections and thrive as an independent company.”

Sun would be more valuable in the hands of a larger industry player than can reduce overhead, lower operating costs, and deal with the regulatory and political environment, the letter goes on to say, concluding that the best way for the “Board of Directors to maximize value for shareholders is for the Company to embark on a targeted sale process, aiming to sell the Company in the first half of 2012.”


The letter ends with Clinton advising the Board of Directors to “hire an investment banking advisor and solicit interest through a targeted sale process,” citing “compelling” opportunity.

Clinton’s CEO Joseph De Perio and senior portfolio manager George Hall co-signed the letter.

Written by Alyssa Gerace

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