Outlines Concerns with Enhabit’s Poor Share Price Performance
Seeks Commitment to Launch Review of Strategic Alternatives Before the End of 2023
In its letter, AREX outlines Enhabit’s dramatic share price underperformance since its spin-off, which AREX believes is largely due to the Company’s poor execution and communication. AREX acknowledges that the Company has begun interviewing the two highly qualified director candidates that it has presented to Enhabit’s Board in order to expedite the Board’s announced Transition Plan. However, AREX believes that the Board must also immediately commit to launching a review of strategic alternatives before the end of 2023 given the compelling value that a full and fair sale process could deliver to shareholders.
If the Board is unwilling to make this important and appropriate commitment, AREX has indicated that it will consider all options at its disposal to ensure that shareholder value is maximized and that the Board is held accountable.
The full text of the letter is set forth below:
Via Electronic Mail
The Board of Directors
Suite 1300
Attention:
We have appreciated the conversations with you over the past few weeks. We initially reached out to Enhabit’s Board of Directors (the “Board”) to express our frustration with the Company’s poor operational and share price performance, and to offer suggestions that would benefit the Company and its shareholders. We are pleased that the Board has begun interviewing the two director candidates we suggested, and we are confident you will find them highly qualified and additive to the Board’s skills matrix. However, the broader issue of Enhabit’s future as a standalone public company must be addressed.
For context, we have been
Despite the Company’s secular growth opportunity and attractive business model, Enhabit’s shares are down ~47% since its spin-off from Encompass on
At the same time, the secular trend towards value-based care has substantially increased the strategic value of home health businesses, as evidenced by Humana’s acquisition of Kindred at Home, UnitedHealth’s acquisition of LHC Group, and most recently by Option Care Health’s announced acquisition of Amedisys, which was followed by an even higher bid from UnitedHealth. In fact, once the Amedisys deal closes (with whichever suitor is victorious),
The recent M&A activity among Enhabit’s peers illustrates the enormous potential returns to shareholders if
We are not privy to the details of the strategic review that Encompass conducted that ultimately resulted in Enhabit’s
Enhabit’s Board, including the five former Encompass directors that it still counts as members, has both the opportunity and the responsibility to correct the mistake seemingly made by the Encompass board. We believe Enhabit’s Board should immediately commit to shareholders that it will commence a review of strategic alternatives before the end of 2023, with an eye towards a potential transaction closing shortly after the two-year anniversary of the spin-off to avoid any tax complications. The road to fully restoring an independent Enhabit’s credibility and valuation is long, arduous, and fraught with operational, public market, and other risks. Given Enhabit’s objectively challenged execution and share price performance, the Board should fully explore the potential delivery of substantial and fair value to shareholders through a sale of the Company. We are highly confident that a full and fair strategic alternatives review will make it very clear to the Board that, as compared to the risks and potential rewards inherent in the status quo, a sale is the obvious way to maximize value for all shareholders.
We understand that in the very short term the Company must consider spin-off tax rules and its Tax Matters Agreement with Encompass, but we are certain that a review of alternatives can be commenced within the time frame we described. In the meantime, our director candidates are prepared to join the Board where they could immediately provide valuable operational and strategic insights and could later guide the Company through its strategic alternatives review.
If the Board is unwilling to make this important and appropriate commitment to shareholders, we will consider all options at our disposal to ensure that shareholder value is maximized and that the Board is held accountable.
Best regards,
Managing Partner
Partner
About AREX
Media Contact
(646) 679-4000
info@arexcapital.com
1 As of
2 UnitedHealth’s purchase price of
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A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/a6e4c362-2f4b-4495-a7fb-d7607ca11c52
Andrew Rechtschaffen
Managing Partner
James T. Corcoran
Partner
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