Enhabit Minority Investor: Selling Company Is Only Acceptable Outcome of Strategic Review

Enhabit Inc. (NYSE: EHAB) must be put up for sale, according to a letter from minority investor AREX Capital Management to the home health and hospice company’s board.

AREX owns about 4.7% of Enhabit’s shares. The hedge fund first posited that Enhabit should be sold in a June letter to the board. Enhabit in August confirmed that it would indeed begin considering “strategic alternatives” that could include a potential sale or merger. 

The new push from AREX followed an Oct. 2 filing with the U.S. Securities and Exchange Commission (SEC) that seemed to say that Enhabit had reduced its revolving credit facility, which the company later clarified was not the case.


“As we work with our advisors and prospective strategic partners as part of our strategic review, out of an abundance of caution we chose to proactively reach out to our bank group to ensure we remain in compliance with our financial covenants,” Enhabit CEO Barbara Jacobsmeyer said in a statement.

Dallas-based Enhabit operates 255 home health locations and 108 hospice locations in 34 states. The company was formed through a spin-off of Encompass Health’s (NYSE: EHC) home health and hospice segment.

Discussions of a potential sale or merger have been tied to uneven quarterly financial results. Progress on the company’s goals has not been fast enough, Jacobsmeyer said in an earnings call.


The company’s net service revenue fell 2.1% year-over-year to $262.3 million during Q2. Its hospice segment saw a modest increase at $48.5 million in Q2, up 1.5% from the prior year’s quarter. Contributing to this was an increase in Enhabit’s non-Medicare business that did not do as well expected, the company reported.

In its letter, AREX accused Enhabit of “poor communication” that created “confusion” among investors through the SEC filing and pointed out that the document did not mention any consideration of a sale or alternative action.

“This latest debacle has once again proven the already blindingly obvious point that Enhabit must not remain a standalone public company. The value of the company’s highly strategic assets has been obscured by underwhelming execution and bloated overhead,” AREX indicated in the letter. “Thankfully, Enhabit’s strategic alternatives review process should ultimately result in a sale. We strongly emphasize to the board that there should be absolutely no question that the highest bid received in a full and fair auction is Enhabit’s fair value. A sale of the company is the only acceptable outcome for this process.”  

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