ISS Recommends Stockholders Support Meaningful Change at Enhabit by Voting the WHITE Proxy Card “FOR” Three of AREX Capital’s Nominees
AREX Capital Management, owning 4.9% of Enhabit (NYSE: EHAB), announced that Institutional Shareholder Services Inc. (ISS) supports their call for boardroom change. ISS recommends Enhabit's stockholders elect three AREX nominees—Anna-Gene O'Neal, Mark W. Ohlendorf, and Dr. Gregory S. Sheff—at the 2024 Annual Meeting on July 25, 2024.
ISS cites Enhabit's lack of expertise in home health, hospice, and financial reporting. They highlight Enhabit's underperformance, with a 40% drop in adjusted EBITDA and significant TSR underperformance since the spin-off. AREX argues their nominees bring essential industry-specific expertise and operational oversight needed for Enhabit's turnaround.
- ISS endorses AREX nominees to bring beneficial industry-specific expertise.
- Nominees O'Neal, Ohlendorf, and Sheff recommended for their detailed understanding of the home health, hospice markets, and public company financial reporting.
- Adding three dissident nominees could provide needed oversight over Enhabit’s financial reporting and shareholder communications.
- Enhabit’s TSR and operational performance significantly underperformed since the spin-off.
- Adjusted EBITDA fell by over 40% in five quarters post-spin-off.
- Persistent inability to provide accurate market guidance.
- Questions raised about the effectiveness of current leadership.
Insights
The recommendation by ISS to elect three AREX nominees is a significant development for Enhabit and it highlights key concerns about the company's financial and operational performance. For retail investors, it is essential to understand that the support for these candidates is based on the reported underperformance since the spin-off and the necessity for better financial oversight. ISS's endorsement signals that external experts recognize the need for improved financial reporting and shareholder communications at Enhabit.
The drop in adjusted EBITDA by over
Additionally, the mention of TSR underperformance relative to peers and the broader market further emphasizes the need for a strategic overhaul. For retail investors, tracking TSR (Total Shareholder Return) is vital as it reflects the overall returns generated by the stock, including dividends. A turnaround in this metric could indicate successful implementation of new strategies by the suggested candidates.
From a market perspective, ISS's recommendation to elect AREX nominees to Enhabit’s board is a move towards addressing sector-specific challenges in the home health and hospice markets. The highlighted need for nuanced understanding of these markets signifies that the current board may lack the depth required to navigate complex industry dynamics. For retail investors, this can mean potential improvements in strategic direction and market positioning if the new board members bring in the necessary expertise.
The market for home health and hospice care is growing, driven by an aging population and a shift towards more personalized, at-home care. However, it is also highly competitive and regulated. The inclusion of industry experts with specific knowledge can lead to better operational strategies and optimized payor contracting, which could ultimately enhance profitability and market share.
Another critical aspect is the public company financial reporting expertise that the nominees bring. This expertise is vital in ensuring transparency and accuracy in financial disclosures, which can bolster investor confidence. Improved communication with shareholders, as noted by ISS, is important for maintaining and enhancing market reputation and attracting long-term investors.
ISS Concludes Support Is Warranted for AREX Nominees to Add Beneficial Industry-Specific Expertise and “Oversight Over the Company's Financial Reporting and Shareholder Communications”
ISS Recognizes “The Most Apparent Needs for the Board Are Additional Expertise Related to Home Health, Hospice, and Public Company Financial Reporting”
AREX Urges Stockholders to Elect Its Full Slate to Ensure Enhabit Has a Board with the Necessary Industry-Specific Experience to Oversee and Guide Management
AREX Managing Partner, Andrew Rechtschaffen, and James T. Corcoran, AREX Partner, commented:
“We are pleased that a leading independent proxy advisory firm has recognized the lack of home health and hospice industry expertise on Enhabit’s Board and validated our case for meaningful boardroom change by recommending that stockholders vote for Anna-Gene O’Neal, Mark W. Ohlendorf, and Dr. Gregory S. Sheff at the upcoming Annual Meeting. We also appreciate that ISS has acknowledged that stockholders may wish to add a direct stockholder voice to the Board by voting for James T. Corcoran.
Electing the full AREX Slate would also bring highly beneficial industry-specific human capital management, operational optimization, and payor contracting expertise to the Board. After two years of significant financial and operational underperformance, we firmly believe the election of all seven of our nominees is the best way to support Enhabit’s realization of its full potential and the creation of value for all stockholders.”
In its report, ISS made the following observations regarding the need for boardroom change at Enhabit:1
- “The most apparent needs for the board include experience in home health and hospice, as well as additional financial expertise given the company's issues with financial reporting and investor communications. On balance, we find that the addition of three dissident nominees would allow for a strong contingent of new candidates with an outside perspective…”
- “…[T]he election of three dissident nominees would provide additional expertise in each of the company's businesses and additional oversight over the company's financial reporting and shareholder communications.”
- “…[B]oth Sheff and O'Neal expressed a nuanced and detailed understanding of the home health and hospice markets, respectively, as well as the specific challenges facing EHAB in each business. Dissident nominee Ohlendorf has significant public company CFO experience, having served as CFO at BKD … he appears to have the necessary skills and experience of communicating with shareholders of a substantially larger public company.”
- “Given the need for change at the board level, it is reasonable that some shareholders may be supportive of adding a direct shareholder to the board, in Corcoran.”
ISS also detailed Enhabit’s poor financial and operational performance as well as its leadership’s overall lack of effectiveness:
- “There is no question of EHAB's underperformance since the spin-off. EHAB's TSR has significantly underperformed its peers and the broader market since the spin-off…”
- “The company’s operational performance has seen a significant erosion in profitability, with adjusted EBITDA falling by more than 40 percent over the five quarters following the spin-off. Further, the company has shown a persistent inability to provide accurate guidance to the market … These factors substantiate the dissident's critique of the company's financial reporting and investor communications, and raise questions as to whether a change is needed in the CFO position…”
- “…[T]he addition of CFO-level experience at the board level could improve board oversight of these concerns, particularly given that none of the named executive officers (NEOs) of EHAB had prior outside public company c-suite experience at the spin-off.”
- “…[T]he company’s TSR and operational performance raise questions as to how effectively [the legacy Encompass directors] performed their duties.”
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AREX encourages stockholders to vote for all seven of its highly qualified nominees on the WHITE Proxy Card at the upcoming 2024 Annual Meeting. AREX believes this is the only way to ensure that Enhabit has a Board with the right experience and skills to effectively oversee management and help them drive operational improvements that can lead to significant value creation for stockholders.
Stockholders are encouraged to visit www.rehabEHAB.com for additional information and to download AREX’s comprehensive plan to turn around Enhabit’s operational performance: Rehabilitate Enhabit.
About AREX
AREX Capital Management, LP is a value-oriented investment firm based in
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1 Permission to use quotations from ISS was neither sought nor obtained.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240712370803/en/
Investor Contact
Saratoga Proxy Consulting
John Ferguson
(212) 257-1311
rehabEHAB@saratogaproxy.com
Media Contact
Longacre Square Partners
Charlotte Kiaie / Bela Kirpalani
(646) 386-0091
rehabEHAB@longacresquare.com
Source: AREX Capital Management, LP
FAQ
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