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Arex Capital Management called on the board of Enhabit Inc., Tuesday to put the home health and hospice provider up for sale due to “poor operational and share price performance.”
The New York-based hedge fund owns a 4.5% stake in Enhabit.
In a letter to Enhabit CEO Barbara Jacobsmeyer and the company’s board, Arex urged the company to begin a strategic review before the end of the year and with a goal of selling the company. Arex expressed frustration in the company’s share price, which has slipped nearly 50% since Enhabit was spun off nearly a year ago from Encompass Health, which operates rehabilitation hospitals.
Enhabit’s stock was trading near $12.50 a share Tuesday afternoon, up more than $3 a share from Monday.
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The firm said it was pleased Enhabit had begun interviewing two board director candidates it suggested, but said the company’s future as a standalone company must be addressed.
“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,” Arex executives wrote in the letter, which was released publicly.
Dallas-based Enhabit did not respond to a request for comment.
Encompass Health spun off Enhabit as a home health and hospice firm last July, following a nearly year-long strategic review of the unit. Enhabit has struggled since the spin-off. In May, the company reported its net service revenue declined 3.4%, to $265 million. During the same period last year when it was a unit of Encompass, its net service revenue totaled $274 million. Adjusted earnings per share for the quarter were 9 cents per share, compared with a year-ago 56 cents per share.
CEO Barbara Jacobsmeyer has attributed the company’s poor performance on workforce issues and administrative problems tied to the spinoff.
Enhabit Home Health and Hospice is the nation’s fourth-largest provider of home health services, with nearly 360 locations in 34 states.
The call to sell the firm comes as interest in home health acquisitions increases among health insurance companies. UnitedHealth Group’s Optum unit closed on LHC Group for $5.4 billion dollars in March. The Eden Prairie, Minnesota-based company submitted a nearly $3.3 billion all-cash bid for Baton Rouge, Louisiana-based Amedisys last week, following an earlier all-stock bid from Option Care Health valued at $3.6 billion. In 2021, Humana acquired the remaining stake in Kindred at Home, the nation’s largest home health in terms of revenues for $8.1 billion.
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