Enhabit Board to Explore Sale, Other Strategic Moves

Aug. 15, 2023
The home health and hospice business’ stock has slid more than 30 percent since the company was spun out from Encompass last year and its leaders last week lowered their guidance

The directors of Dallas-headquartered Enhabit Inc. have begun preparations for a review of their strategic options, a process that is likely to include a merger or sale of the home health and hospice company, which has annual revenues of more than $1 billion.

Enhabit runs 255 home health locations and 108 hospice locations across 34 states and last year had more than 202,000 home health admissions and a daily census of about 3,500 hospice patients. Word of its plans to go to market in some fashion comes about two months after Arex Capital Management, one of the company’s largest shareholders, went public with a push to make major changes to its board and explore strategic alternatives.

Speaking to analysts last week after reporting second-quarter results, President and CEO Barb Jacobsmeyer said her team is looking to secure a legal opinion that safeguards tax benefits from its mid-2022 spinoff from Encompass Health Corp. should it be sold. Jacobsmeyer also said Enhabit’s value is benefiting from long-term trends such as the aging U.S. population, the growing movement toward in-home care and a broader push from multiple healthcare stakeholders toward providing care in the lowest-cost setting.

In a follow-up statement/open letter to Enhabit’s leaders Aug. 14, Arex managers—who in May proposed two candidates to the company’s board—applauded the decision to search for a buyer but voiced concerns about the process.

“While there is no reason to relitigate the circumstances that resulted in Enhabit’s spin-off, there was a perception at that time that the Encompass board was reluctant to sell Enhabit,” Arex leaders wrote. “We cannot help but observe that five of those same Encompass directors are now on Enhabit’s Board. This lingering perception […] has raised legitimate shareholder concerns about the effectiveness of the board and whether it is truly focused on fulfilling its fiduciary obligations. Such sentiment adds unhelpful uncertainty to a strategic alternatives process.”

Another element of uncertainty around Enhabit is the health of its business in the next few quarters: Jacobsmeyer and CFO Crissy Carlisle lowered their earnings guidance along with their Q2 report and said that Enhabit hasn’t been able to keep up with the market’s rapid shift toward Medicare Advantage and away from fee-for-service volume. In addition, they said, Enhabit is losing referrals from UnitedHealth Group Inc. since that company has acquired LHC Group Inc. and announced plans to buy Amedisys Inc.

Shares of Enhabit (Ticker: EHAB) fell nearly 3 percent Aug. 11 to close at $11.50. They have now retreated about 34 percent from they began trading 13 months ago, a slide that has shrunk the company’s market capitalization to about $575 million.

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