LHC Group, Optum Deal Hits Snag as Encompass Health Spin-Off Nears Closing

As one massive home health and hospice transaction steams towards completion, another is delayed.

The forthcoming spin-off of Enhabit Home Health & Hospice from Encompass Health (NYSE: EHC) is just about ready to close on July 1. Meanwhile, a minor administrative snag will delay closing of UnitedHealth Group (NYSE: UHG) subsidiary Optum’s acquisition of LHC Group (NASDAQ: LHCG).

UnitedHealth Group in May withdrew its notification of merger and report filing with the Federal Trade Commission, and then resubmitted in June. Thus, the FTC needs additional time to review the documents, which are customary in any acquisition.

“The parties have been working cooperatively with the FTC and will continue to do so,” LHC Group indicated in an SEC filing.

Optum announced its $5.5 billion acquisition of LHC Group in April.

The 30,000 employees of Lafayette, Louisiana-based home health and hospice provider deliver hospice, home health, home- and community-based services, and facility-based care to seniors in 37 states and the District of Columbia.

The Enhabit spin off, however, is proceeding apace. The company filed documents with the SEC detailing its financial position and performance outlook as it formally launches on July 1.

Enhabit expects to earn nearly $1.08 billion to $1.12 billion during the remainder of 2022, with an adjusted EBITDA of $197 million.

The spin off will allocate $2 million to $3 million to fund de novo locations for the remainder of the year, as well as $50 million to $100 million annually for acquisitions, according to the SEC filing.

At closing, the spin off will operate 252 home health locations and 96 hospice agencies throughout 46 states and Puerto Rico.

Encompass in Dec. 2020 announced that it would consider options for a strategic repositioning of its home health and hospice segment. This past January, the company confirmed that it would pursue a spin off.

“The board has considered an array of alternative strategies and structures and dynamic market environment with the advice of our financial advisors and legal counsel and with input from shareholders and taking into account various factors including execution risk, tax efficiency, and capital structure,” Encompass CEO Mark Tarr said in an Q1 2022 earnings call.