RUSH owned Omnicare commits crime, CEO resigns due to performance
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Omnicare CEO Joel Gemunder resigns ahead of earnings news
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By Lisa Bernard-Kuhn,
The Cincinnati Enquirer Major leadership changes are underway at
Omnicare (OCR), the nation's largest provider of pharmaceutical care
for the elderly.
On Monday, the Covington, Ky.-based Fortune 500 company announced that
longtime president and CEO Joel Gemunder retired along with senior
vice president Cheryl Hodges over the weekend. Their departures were
effective Saturday.
Gemunder, 71, has also retired from his post as a director. The news
follows the June retirement of chief operating officer Patrick Keefe.
James "Denny" Shelton, a company director and the former chairman and
CEO of Plano, Texas-based Triad Hospitals, is replacing Gemunder until
a permanent replacement is named, the company said.
The search for a new CEO is expected to take up to five months.
"The board is grateful for Joel's extraordinary vision, talent and
leadership over the course of the last three decades," said John
Crotty, chairman of Omnicare's board of directors, in a statement. "He
built Omnicare from a company with $150 million in annual revenues
into one of the nation's largest providers of comprehensive
pharmaceutical services for seniors with net sales of over $6 billion
today."
Neither Shelton nor Gemunder were available for comment.
Gemunder had been president of the company since 1981, when it was
formed as a subsidiary under Cincinnati-based Chemed.
He will receive cash severance of $16.2 million, payable in
installments through July 1, 2011, according to filings with the
Securities and Exchange Commission. Also under the severance
agreement, Gemunder's 2.7 million unvested stock options and 705,176
shares of restricted stock are now fully vested.
Last year, Gemunder received about $14 million in total compensation.
In a statement, Gemunder said he will focus on the next stage of his
life, his family and charitable interests.
Hodges' cash severance of $2.1 million will also be paid out through
July 1. She also has roughly 447,000 stock options and an additional
112,000 shares of restricted stock that became vested upon her
resignation.
Gemunder "believed it was the right time to hand over the reins to a
new generation of leaders," Omnicare spokesman Andy Brimmer said.
News of the weekend departures sent shares of the company's stock down
nearly 5% in morning trading. Shares ended the day down 0.5% to
$24.52.
The announcement, however, was not as surprising as its timing, just
days before the company releases second-quarter earnings, said Steven
Halper, an analyst at New York-based Stifel Nicolaus, an equity
research firm.
"Most companies, when they have a management departure so close to an
earnings release, would confirm what the numbers were or say something
about the company's performance," Halper said. "Omission of such a
statement begs the question, 'Did the company have a disappointing set
of numbers?' When CEOs leave, it's not always a nice and tidy
package."
Omnicare has had its share of ups and downs in recent years.
In November, the company agreed to pay $98 million to settle a Justice
Department lawsuit alleging the firm paid kickbacks to nursing homes
and received money for buying and making recommendations on certain
drugs.
Some of those kickbacks involved drugmaker Johnson & Johnson, which,
federal prosecutors said, paid millions in kickbacks to Omnicare to
push more nursing homes to prescribe drugs including Risperdal, a
treatment for schizophrenia. Omnicare has not acknowledged any
misconduct as part of the settlement.
Omnicare CEO Quit Amid Board Concerns
Omnicare's Finances a Key Concern
By MARK MAREMONT And JOANN S. LUBLIN
Joel Gemunder abruptly retired as CEO of health-care concern Omnicare
Inc. last weekend, primarily due to board concerns about the company's
financial performance, a person familiar with the situation said.
The decision that Mr. Gemunder, 71 years old, would depart was made at
a board session July 27 that he didn't attend, another person close to
the company said. This person spoke to Mr. Gemunder soon afterward and
he seemed "surprised" and expressed disappointment over the turn of
events.
An attorney for Mr. Gemunder didn't return a phone call and an email
seeking comment.
His retirement agreement was effective July 31 and was announced
Monday by Omnicare, based in Covington, Ky. Mr. Gemunder departed with
more than $130 million, including a lump-sum pension benefit valued at
$91 million at year-end 2009.
In addition, Cheryl D. Hodges, 58, a senior vice president and the
company secretary, who had been with Omnicare since 1982, resigned the
same day as Mr. Gemunder. Among her duties was overseeing investor
relations.
Ms. Hodges was among the company's top five highest-paid executives.
She was awarded $2.1 million in severance and walked away with a lump-
sum pension benefit that had been valued at $8.1 million at year-end
2009, plus immediate vesting of restricted stock worth more than $2.7
million.
The main precipitating event for Mr. Gemunder's departure was
financial performance, a person close to the company said. "The board
was out of patience" with Mr. Gemunder, this person added, and didn't
think he was the right person to lead a recovery effort. Mr. Gemunder
had been president since 1981 and CEO since 2001.
The company's shares fell 6% in May after the company reported lower
revenue and profit margins for its first quarter ended March 31.
Some analysts, taken by surprise by Mr. Gemunder's retirement,
believed it could be a harbinger of disappointing second-quarter
earnings, scheduled to be announced Thursday morning. Brendan Strong
of Barclays Capital said he expects the earnings call to focus on "bed
growth (or decline)" for Omnicare, which supplies pharmaceuticals to
nursing homes, long-term care facilities, hospices and the like.
Steven P. Halper of Stifel Nicolaus said in a note to clients that Mr.
Gemunder's "departure is a positive development at this point."
Omnicare, he said, "has undergone several missteps in recent years,
and will probably benefit from a change in management in our view."
Omnicare named a director, James D. Shelton, as interim CEO while it
searches for a permanent replacement for Mr. Gemunder.
One possible internal candidate for the job is John Workman, a former
HealthSouth Corp. chief financial officer who was recruited to the
same job at Omnicare last November. One person familiar with the
situation said another contributing factor to the boardroom shake-up
was that the new finance chief found it difficult to work for the
strong-minded Mr. Gemunder. Mr. Workman through a spokesman declined
to comment.
In November 2009, Omnicare agreed to pay $98 million to settle charges
that it engaged in kickback schemes with drug makers and nursing
homes, the U.S. Justice Department said. Officials alleged that
Omnicare regularly paid kickbacks to nursing homes to induce the homes
to refer patients to it. Federal authorities also claimed Omnicare
solicited and received kickbacks from Johnson & Johnson in exchange
for recommending that doctors prescribe the antipsychotic drug
Risperdal. The settlement didn't contain any admission of wrongdoing
by Omnicare.
—Thomas M. Burton contributed to this article.