Enhabit Inc. (NYSE: EHAB) remains on the defensive against the activist investor AREX Capital Management.
Last month, it provided more details around its completed strategic review, explaining the rationale behind remaining an independent company, in lieu of a merger or a sale. On Monday, it laid out its reasoning behind past struggles, its plan for future success, and most importantly, why it believed shareholders should back its chosen board members, and not AREX Capital’s.
AREX Capital has nominated new board members ahead of Enhabit’s annual meeting.
“At our upcoming 2024 Annual Meeting of Stockholders, you will have an important decision to make about the future of Enhabit Home Health & Hospice – whether our Board should be replaced and control of Enhabit handed to one of our stockholders, AREX Capital Management,” Enhabit wrote in a letter to its shareholders. “Your current Board unanimously believes the answer to this question is emphatically, no.”
Based in Dallas, Enhabit has 255 home health locations and 112 hospice locations across 34 states.
AREX Capital was one of the primary reasons Enhabit initiated a strategic review in the first place. After struggling for multiple quarters in a row, AREX Capital – which owns 4.9% of Enhabit shares – demanded a strategic review, and then subsequently deemed a sale the “only acceptable outcome” of that review.
Once that strategic review ended without a sale, it let its intentions at the annual meeting known.
Enhabit then released a more detailed overview of the strategic review, as well as the reasons it believed it was not the right time for a transaction.
AREX Capital then responded to that with another open letter.
“We are disappointed that the Board has chosen to continue its pattern of deflecting the valid and serious concerns of its stockholders,” it wrote at the end of May. “It seems that the Board is looking for ways to spite its true owners rather than act in their best interests to maximize the value of the Company. This is at the core of why we feel we have no other choice but to take the steps necessary to reconstitute the Board.”
AREX Capital’s board nominees include: Megan Ambers; James T. Corcoran; Maxine Hochhauser; Mark Ohlendorf; Anne-Gene O’Neal; Dr. Gregory S. Sheff; and Juan Vallarino.
Ambers previously served as chief human resources officer at Amedisys Inc. (Nasdaq: AMED), and was with the company for four years, from 2018 to 2022. Houchhauser has spent time with Amedisys, Addus HomeCare Corp. (Nasdaq: ADUS) and LHC Group. Ohlendorf is the former CFO of Brookdale Senior Living (NYSE: BKD), and O’Neal was the president of Brookdale’s health care services division. Sheff previously was the head of home solutions at Humana Inc. (NYSE: HUM). Vallarino was the CEO of the convener MyNEXUS.
Enhabit believes that the nominated board members in question have “outdated” and “flawed” experience.
“Despite our demonstrable progress and current trajectory, AREX has initiated a proxy contest to replace the majority of the Board with a seven-candidate slate that has largely outdated experience and numerous other flaws,” the company wrote. “Most prominently, none of the six independent candidates have any board experience at a NYSE- or NASDAQ-listed company. Furthermore, if AREX takes control of the Company, their stated intent is to institute a “Transformation Committee,” which will presumably operate as a shadow management team, to implement a yet-to-be-disclosed strategic plan – this is not the recipe for success.”
Enhabit said that it has engaged with AREX Capital extensively, and that the latter has not had any “willingness to entertain a reasonable settlement offer that does not include delivering AREX control of the board.”
Right now, Enhabit believes AREX Capital’s actions could “destabilize the business.”
AREX Capital has recently issued similar open letters regarding its stake in The ODP Corporation (Nasdaq: ODP).
In addition to taking aim at AREX Capital’s board nominees, Enhabit also explained where it had improved over the last few quarters, and why it had struggled initially on the public market in the first place.
“AREX’s public statements contain numerous mischaracterizations, cherry-picked time periods and misleading assertions, which we will address in future communications,” Enhabit wrote. “However, we wholeheartedly agree with AREX on the following: ‘The only thing that matters now is setting the Company on a path that will unlock Enhabit’s substantial value for all stockholders.’”
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