Posted June 16, 2023
McKnight’s Home Care
By: Liza Berger
A small investor in Enhabit Home Health & Hospice is urging the firm to sell itself based on the firm’s declining share price.
Hedge fund Arex Capital Management, which owns a 4.5% stake in the company, wants Enhabit to conduct a strategic review given the stock’s nearly 50% slide since the company went public a year ago, according to a letter from Andrew Rechtschaffen, managing partner of Arex, to Enhabit’s chief executive officer and board.
“The Board should fully explore the potential delivery of substantial and fair value to shareholders through a sale of the Company,” the letter said.
Enhabit did not immediately reply to a request for comment from McKnight’s Home Care Daily Pulse.
The letter compares Enhabit’s underperformance to that of its competitors.
“Although it is true that the home health and hospice industries have recently faced unique regulatory and operational challenges, Amedisys, arguably the public company most similar to Enhabit, saw its shares decline by far less than Enhabit’s over this period — even prior to Amedisys’ recent M&A-driven increase,” the letter states. “In our opinion, Enhabit’s poor share price performance on both an absolute and relative basis is primarily self-inflicted, as a surprisingly large number of missteps have badly eroded confidence in management and contributed to a deeply discounted valuation.”
The letter also points out the “enormous potential returns” to shareholders should Enhabit pursue a sale. It compares the possible upside to big gains from other major home care firms due to sales. Specifically, it references LHC Group, which UnitedHealth Group has acquired, and Amedisys, which is merging with Option Care Health and which recently received an offer from Optum.
“While there are various factors that could make an acquisition multiple for Enhabit higher or lower than any specific precedent, we believe that the likely involvement of numerous large, well-capitalized potential buyers would cause a sale process to be vigorous and competitive,” the letter said.
In the first quarter of 2023, Enhabit’s earnings fell by 46.2%. Enhabit was spun off from Encompass Health Corp. on July 1, 2022.
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