Files Preliminary Proxy Statement;
Elaborates on AREX Capital Management’s Singular
Focus in Demanding a Sale of the Company
Enhabit, Inc. (NYSE: EHAB) (“Enhabit” or the “Company”) today
announced that it has filed its preliminary proxy materials with
the Securities and Exchange Commission (the “SEC”) in connection
with its upcoming 2024 annual meeting of stockholders (the “2024
Annual Meeting”). The preliminary proxy statement is available on
the Investor Relations section of the Enhabit website at
investors.ehab.com.
The Company is filing a preliminary proxy statement because AREX
Capital Management, LP (together with its affiliates and
associates, “AREX”) has notified the Company that it intends to
nominate seven candidates for election to the Company’s nine-member
board at the 2024 Annual Meeting.
In connection with the filing, Enhabit provided additional
information regarding its recently concluded strategic review
process. Highlights include:
- Enhabit, with the assistance of its financial advisor, Goldman
Sachs, and its legal advisor, Sidley Austin, ran a comprehensive
process that lasted approximately nine months. Goldman Sachs
received full leeway to engage potential counterparties.
- The process involved 38 potential counterparties, including
strategic buyers and financial sponsors. Of those parties, 26
executed non-disclosure agreements and nine participated in
management presentations.
- Four parties, consisting of two financial sponsors and two
strategic acquirors, provided initial indications of interest.
- The parties expressed varying degrees of interest; however,
none submitted formal offers despite the Company’s extensive
efforts to facilitate diligence.
- Significant headwinds impacted the strategic review process,
including regulatory developments related to changes in Medicare
Advantage rates and the antitrust landscape, a difficult healthcare
operating environment, and persistently high interest rates.
The Board, which includes two directors appointed as part of a
cooperation agreement with Cruiser Capital and Harbour Point
Capital, was actively engaged throughout the strategic review
process. The Enhabit Board of Directors and management team remain
steadfast in their commitment to maximize value for stockholders
and will continue to evaluate all opportunities to do so.
The eight independent directors who have been nominated for
reelection to the Enhabit Board at the 2024 Annual Meeting issued
the following statement:
“Enhabit’s strategic alternatives process was robust and
included outreach to a significant number of potentially interested
third parties. In addition, Enhabit issued a public announcement of
the process to ensure that other potential counterparties would be
aware of the process. After nine months and having received no
actionable proposals, despite giving the most interested parties an
abundance of time to submit such a proposal, the Board unanimously
determined to conclude the strategic review. We remain confident
the Company has taken the right steps to improve financial and
operational results, enhance growth, and create significant value
for all Enhabit stockholders. We are disappointed that AREX has
initiated a proxy contest to take control of the Board in the wake
of the extensive strategic review that they demanded.”
Summary of the Strategic Review Process
Stage 1: AREX Demands a Review of Strategic Alternatives
In May 2023, AREX sent a private letter to the Board urging a
review of strategic alternatives, the immediate resignation of five
directors who had previously served on the board of directors of
Encompass Health Corporation (“Encompass”, and such directors, the
“Transitional Directors”), and the immediate appointment of two
director candidates proposed by AREX. In June 2023, AREX sent a
second letter to the Board, which was publicly disclosed in a press
release, in which AREX again demanded a strategic review process by
the end of the year and the appointment of its two director
candidates. AREX failed to acknowledge the appointment of the two
new directors pursuant to the cooperation agreement with Cruiser
Capital and Harbour Point Capital, including one with substantial
experience in mergers and acquisitions, earlier in the year.
Stage 2: Company Initiates a Strategic Review
Prior to AREX’s private letter and public campaign, the Board
had already contemplated a variety of options that would enhance
stockholder value, including strategic transactions. The Board had
considered the possibility of a strategic transaction with its
financial advisor, Goldman Sachs, as early as the summer of 2022,
in the initial months following the Company’s separation from
Encompass. This workstream involved a review of market trends, a
valuation workstream, and an assessment of the Company’s options
for pursuing a strategic transaction given certain restrictions in
the tax matters agreement with Encompass executed in connection
with the Company’s spin-off (the “Tax Matters Agreement”). In
particular, the Tax Matters Agreement prohibited the Company from
undertaking any strategic transaction before the second anniversary
of the Separation unless it received the advance approval of
Encompass, and it also required the Company to indemnify Encompass
and its stockholders from any tax liabilities, which could be
substantial, if the Internal Revenue Service were to determine that
the Separation no longer qualified as a tax-tree transaction.
The Board believed, as of early June 2023, that while a
strategic review process would be an appropriate step to take in
the medium-term, doing so in the coming months as demanded by AREX
was not the appropriate course. As of that time, the Board and its
advisors identified several significant market-wide and
industry-wide factors that could limit the desire or ability for
likely counterparties to make an offer for the Company. These
factors included the broad transition of payor mix from Medicare to
Medicare Advantage, the generally lower payment rates of Medicare
Advantage, the high interest rate environment, inflationary wage
trends, and labor market shortages.
Nevertheless, the Board continued to consider a strategic review
throughout June, July and early August 2023, with the input of
management and the Company’s financial and legal advisors. During
this time, the Company and its outside legal counsel also
thoroughly evaluated the Tax Matters Agreement.
Developments during this period informed the Board’s decision to
launch a strategic review. First, a strategic party in the
healthcare industry approached the Company on an unsolicited basis
to ask if the Company would consider a sale or running a process.
Second, the Company’s outside legal counsel completed negotiations
with Encompass regarding the Tax Matters Agreement and delivered an
opinion that undertaking a strategic review would not cause the
spin-off to fail to qualify as tax-free under applicable law. In
addition, certain other stockholders continued to ask the Board to
initiate a strategic review.
Ultimately, the Board concluded that, despite certain clear
headwinds in the market, initiating a strategic review would serve
the dual purposes of thoroughly exploring options to maximize
stockholder value and satisfying investors that the Board was
taking all reasonable measures to maximize stockholder value.
Additionally, AREX’s mid-June press release, demanding that the
Company commit to a strategic review, had already yielded negative
effects traditionally associated with the announcement of a
strategic review, such as industry rumors, which subsequently
reduced the downside of publicly announcing the review.
When the Board announced its intent to launch the strategic
review on August 9, 2023, the Board consisted of five Transitional
Directors, five independent directors without prior service on the
Encompass board of directors (each with a tenure of less than two
years), two new directors appointed pursuant to the cooperation
agreement with Cruiser Capital and Harbour Point Capital, and the
CEO. The Company had previously disclosed that four of the five
Transitional Directors would not stand for reelection to the Board
at the 2024 Annual Meeting.
On August 14, 2023, AREX issued a public letter applauding the
launch of the strategic review that it had demanded. AREX’s press
release further implied that the Transitional Directors were
entrenched and unwilling to run a full and fair process to sell
Enhabit. These allegations ignored the Company’s prior disclosures
that four of the five Transitional Directors would step off the
Board in 2024, regardless of whether a sale occurred.
Starting in September 2023, Goldman Sachs made outbound calls to
38 parties, including 10 parties who contacted the Company in
August in response to the Company’s announcement regarding the
strategic review process. Of the 38 parties, 13 were strategic
buyers and 25 were financial sponsors. 26 parties executed
non-disclosure agreements and nine participated in management
presentations in October 2023. Following management presentations,
the Company provided parties with access to a virtual data room.
Throughout October and into November, the Board, with the advice of
Goldman Sachs, worked to identify the parties who were most likely
to present a compelling offer. During this period, multiple
potential counterparties noted the impact of elevated interest
rates on the feasibility of a potential transaction.
Stage 3: Initial Indications of Interest and Diligence
In November 2023, four parties, consisting of two financial
sponsors and two strategic acquirors, provided Goldman Sachs with
initial indications of interest. The financial sponsors provided
indicative valuation ranges of $11 to $12 per share. One strategic
acquiror provided a valuation of $10 per share. The other strategic
acquiror proposed all-stock consideration without providing a
valuation.
The Board determined that the all-stock proposal from the second
strategic acquiror did not present a credible proposal as the party
had not provided a valuation, had not signed a non-disclosure
agreement, and had not received any confidential information prior
to the submission of its indication of interest.
The Company facilitated significant follow-up diligence from the
other three parties, including hundreds of diligence requests.
Stage 4: Focused Engagement with Two Parties
In January 2024, the Company requested updated indications of
interest by a specified date within the month, and requested that
the parties also address a number of specific requirements,
including commenting on a draft transaction document. Later in
January, the remaining strategic acquiror submitted a letter
confirming its interest, but did not include any information around
a valuation or a clear path to signing a definitive agreement. One
financial sponsor provided an updated indication of interest, which
the Board viewed as not actionable due to concerns around the
party’s ability to finance a transaction. The financial sponsor had
contemplated financing to be provided by one of its portfolio
companies. The second financial sponsor declined to provide a
formal proposal as its strategic partner was not interested in
pursuing the transaction.
The Company’s advisors continued engaging the remaining
strategic acquiror over several months given the strategic
acquiror’s continued expressions of interest in the Company. The
strategic acquiror had referenced a desire to submit an updated
offer after the announcement of the annual financial results, and
despite repeated outreach from the Company’s financial advisors and
the process remaining open through April to facilitate continued
engagement, the strategic acquiror did not submit a formal offer.
Discussions with the strategic acquiror had been gated by various
milestones, such as the Company’s fourth-quarter earnings, the
Company’s filing of its Form 10-K, and the final Medicare Advantage
rate announcement on April 1, 2024. The strategic acquiror, along
with its industry peers, also faced additional challenges which the
Company believes hampered its ability to proceed with a
transaction.
An additional strategic acquiror, which had not previously taken
part in the Company’s process, approached Goldman Sachs in late
March 2024. The acquiror expressed general interest in the process
and indicated that it would follow with additional specificity
about its bid and valuation after further review. Goldman Sachs
urged the party to submit its indication of interest as soon as
possible. The continuation of the Company’s process through April
afforded reasonable additional time for the formulation of an
indication of interest, but the acquiror did not continue its
engagement.
During this period of engagement from November 2023 until May
2024, significant, well-recognized headwinds impacted the strategic
review process. In addition to preexisting factors such as the
interest rate environment, inflationary wage trends, labor
shortages, and the increase in Medicare Advantage utilization in
skilled home health services, the process was also impacted by new
changes to rates in the Medicare Advantage market. On January 31,
2024, the Centers for Medicare & Medicaid Services (“CMS”)
published an advance notice indicating that rates for Medicare
Advantage were expected to decrease. On April 1, 2024, CMS released
its 2025 rate announcement for Medicare Advantage, which finalized
certain previously proposed policies. Unlike in prior years, the
finalized rates were not revised upwards following the advance
notice, further impacting the health services market and potential
counterparties. The April announcement resulted in a broader
decline in the median market capitalization of the managed care
industry of approximately 6%, based on stock price performance of
the Cigna Group, Centene Corporation, CVS Health, Elevance Health,
Humana, Molina Healthcare and UnitedHealth Group from April 1 to
April 2, 2024.
The strategic review process, as described above, was publicly
announced, comprehensive, and deliberate, lasting nine months and
involving 38 potential counterparties. On May 8, 2024, having
received no formal proposals, the Company announced that the Board
had unanimously determined to terminate the strategic review.
About Enhabit Home Health &
Hospice
Enhabit Home Health & Hospice (Enhabit, Inc.) is a leading
national home health and hospice provider working to expand what’s
possible for patient care in the home. Enhabit’s team of clinicians
supports patients and their families where they are most
comfortable, with a nationwide footprint spanning 255 home health
locations and 112 hospice locations across 34 states. Enhabit
leverages advanced technology and compassionate teams to deliver
extraordinary patient care. For more information, visit
ehab.com.
Forward-Looking
Statements
Statements contained in this press release which are not
historical facts are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. All
forward-looking information speaks only as of the date hereof, and
Enhabit undertakes no duty to publicly update or revise such
forward-looking information, whether as a result of new
information, future events, or otherwise. Such forward-looking
statements are based upon current information and involve a number
of risks and uncertainties, many of which are beyond our control.
Actual events or results may differ materially from those
anticipated in these forward-looking statements as a result of a
variety of factors. While it is impossible to identify all such
factors, factors which could cause actual events or results to
differ materially from our present expectations include, but are
not limited to, our ability to execute on our strategic plans,
regulatory and other developments impacting the markets for our
services, changes in reimbursement rates, general economic
conditions, changes in the episodic versus non-episodic mix of our
payers, the case mix of our patients, and payment methodologies,
our ability to attract and retain key management personnel and
health care professionals, potential disruptions or breaches of our
or our vendors’, payors’, and other contact counterparties’
information systems, the outcome of litigation, our ability to
successfully complete and integrate de novo locations,
acquisitions, investments, and joint ventures, our ability to
successfully integrate technology in our operations, our ability to
control costs, particularly labor and employee benefit costs, and
impacts resulting from the announcement of the conclusion of the
strategic review process. Additional information regarding risks
and factors that could cause actual results to differ materially
from those expressed or implied by any forward-looking statement in
this press release are described in reports filed with the SEC,
including our Annual Report on Form 10-K and subsequent Quarterly
Reports on Form 10-Q, copies of which are available on the
Company’s website at http://investors.ehab.com.
Important Additional Information and
Where to Find It
The Company intends to file a proxy statement on Schedule 14A,
an accompanying YELLOW proxy
card, and other relevant documents with the SEC in connection with
such solicitation of proxies from the Company’s stockholders for
the Company’s 2024 annual meeting of stockholders. THE COMPANY’S
STOCKHOLDERS ARE STRONGLY ENCOURAGED TO READ THE COMPANY’S
DEFINITIVE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS
THERETO), THE ACCOMPANYING YELLOW PROXY CARD, AND ALL OTHER DOCUMENTS
FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
Investors and stockholders may obtain a copy of the definitive
proxy statement, an accompanying YELLOW proxy card, any amendments or
supplements to the definitive proxy statement and other documents
filed by the Company with the SEC at no charge at the SEC’s website
at www.sec.gov. Copies will also be available at no charge by
clicking the “SEC Filings” link in the “Investors” section of the
Company’s website, http://investors.ehab.com, or by contacting
InvestorRelations@ehab.com as soon as reasonably practicable after
such materials are electronically filed with, or furnished to, the
SEC.
Participants in the
Solicitation
The Company, its directors, certain of its officers, and other
employees may be deemed to be “participants” (as defined in Section
14(a) of the Exchange Act of 1934, as amended) in the solicitation
of proxies from the Company’s stockholders in connection with
matters to be considered at the Company’s 2024 annual meeting of
stockholders.
Information about the names of the Company’s directors and
officers, their respective interests in the Company by security
holdings or otherwise, and their respective compensation is set
forth in the sections entitled “Election of Directors,”
“Compensation of Directors,” “Executive Compensation,” and
“Security Ownership of Certain Beneficial Owners and Management” of
the Company’s Proxy Statement on Schedule 14A in connection with
the 2023 annual meeting of stockholders, filed with the SEC on May
19, 2023 (available here) and the Company’s 10-K/A, filed with the
SEC on April 26, 2024 (available here). To the extent the security
holdings of directors and executive officers have changed since the
amounts described in these filings, such changes are set forth on
Initial Statements of Beneficial Ownership on Form 3 or Statements
of Change in Ownership on Form 4 filed with the SEC, which can be
found at no charge at the SEC’s website at www.sec.gov. Updated
information regarding the identity of potential participants and
their direct or indirect interests, by security holdings or
otherwise, in the Company will be set forth in the Company’s Proxy
Statement on Schedule 14A for the 2024 annual meeting of
stockholders and other relevant documents to be filed with the SEC,
if and when they become available. These documents will be
available free of charge as described above.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240523972611/en/
Investor relations contact Crissy Carlisle
investorrelations@ehab.com 469-860-6061
Media contact Erin Volbeda media@ehab.com
972-338-5141
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