AREX Capital Urges Fellow Stockholders to Support Meaningful Change at Enhabit at the Upcoming Annual Meeting
$EHAB
Reiterates that Two Leading Proxy Advisory Firms Have Recommended Stockholders Support Meaningful Change to Enhabit’s Board
Reminds Stockholders that Enhabit Has Historically Made Excuses for Poor Performance and Empty Promises
Underscores Opportunity Stockholders Have to Add Industry-Specific Expertise to Enhabit’s Board at the Annual Meeting on July 25th
Fellow Stockholders,
AREX Capital Management, LP (together with its affiliates, “AREX” or “we”) is the beneficial owner of approximately 4.9% of the outstanding common shares of Enhabit, Inc. (“Enhabit” or the “Company”). We have been an Enhabit stockholder since the day it became publicly traded, and we believe that the Company has immense potential—which could be realized if it had the right board of directors. As a firm, AREX rarely resorts to running proxy contests. However, with respect to Enhabit, we simply could not stand by any longer and watch the current board of directors (the “Board”), which lacks essential industry-specific experience, preside over significant financial and operational underperformance and destruction of stockholder value.
Our solution starts with the election of AREX’s seven nominees (the “AREX Slate”), who collectively possess deep home health and hospice industry experience, to Enhabit’s nine-person Board. We assembled the AREX Slate thoughtfully and carefully—in fact, every member of the AREX Slate was chosen to address specific and critical deficiencies in the current Board’s mix of skills that have been exposed over the past two years.
Throughout this campaign, we have provided our fellow stockholders with facts demonstrating the Board’s failures and the Company’s missteps that have led to significant value destruction since Enhabit’s spin-off. In our view, the urgency of the need for change at Enhabit is a function of both its unrealized potential and the risk associated with the status quo. A truly refreshed Board with the right mix of skills can help deliver meaningful improvements and value creation at Enhabit. Conversely, given the Company’s elevated leverage profile, ongoing operational underperformance risks material additional value destruction for stockholders.
We are proud to have won the support of two leading proxy advisory firms, who have acknowledged the Board’s failure to appropriately oversee Enhabit and its management team. Conclusively, proxy advisors Institutional Shareholder Services Inc. (“ISS”) and Glass, Lewis & Co. (“Glass Lewis”) recommended stockholders support meaningful change in the current Board’s composition by electing three members of the AREX Slate. We remain open to a negotiated resolution that would benefit all stockholders, and in our most recent outreach to the Company on July 19th, we again attempted to engage constructively with the objective of reaching a settlement. However, the current Board seems intent on ignoring what is in the best interest of stockholders and on seeking to further entrench itself.
Your vote in support of the AREX Slate at the 2024 Annual Meeting of Stockholders (the “Annual Meeting”) is an opportunity to address the deficiencies of the current Board and ignite change now to create long-term value for all stockholders.
Stockholders Have Endured Significant Underperformance During the Board’s Tenure
As ISS confirmed in its report, “There is no question of [Enhabit’s] underperformance since the spin-off.”1 And as shown below, Enhabit’s stockholders have consistently endured significant total stockholder return (“TSR”) underperformance, particularly relative to the Company’s direct peers.
The Company has offered a variety of excuses for this underperformance, all of which fall apart under scrutiny:
Enhabit’s underperformance cannot be attributed to industry headwinds, as direct peers competing in the same industries have produced far better operating results over the past two years, which has been reflected in their superior stockholder returns.
Enhabit’s underperformance cannot be attributed to becoming an independent company, as it always operated as a standalone business within its former parent, with a separate headquarters in Dallas and a reputation as “the industry leader in home health and hospice” before its spin-off.2
Enhabit’s underperformance cannot be attributed to its status as a new spin-off, as its TSR ranks significantly below the median TSR of the 14 U.S. spin-offs completed in 2022, both over the past year and since each company’s respective spin-off date.3
In fact, Enhabit’s underperformance is attributable to repeated management missteps and a Board that lacked the industry-specific knowledge to ask them probing questions, to help them refine their strategies, or to hold them accountable for poor performance.
1 ISS report from July 11, 2024. Permission to quote neither sought nor obtained. 2 See Encompass Health press release from April 26, 2021, available here. 3 Enhabit’s one-year TSR through July 19, 2024, is (29.7%) compared with a median TSR of 37.7% for the 14 U.S. spin-offs completed in 2022. Since each company’s respective spin-off, Enhabit’s TSR of (58.7%) trails significantly behind the group median of 39.2%. The 14 U.S. spin-offs completed in 2022 according to The Edge Spinoff Report research are as follows: BAM, BHVN, CEH, EHAB, EMBC, ESAB, FG, FIP, MBC, OABI, RXO, WBD, XPER, and ZIMV.
Enhabit Has a History of Making Excuses and Empty Promises
Enhabit has repeatedly given guidance it couldn’t meet and made promises it couldn’t keep. Even today, the Company continues to blame external factors for its challenges and refuses to take responsibility for its poor results. And while we are pleased that the Company’s most recent quarters have shown a degree of “stabilization,” we feel that stockholders should not mistake bottomed-out results for progress.
Consider the following critical operational objectives that have been omitted from the Company’s recent communications:
If Enhabit’s payor innovation strategy were allowing it to recapture some of the home health fee-for-service Medicare (“FFS”) market share that it has lost, the Company surely would have provided evidence of that. It has not.
If Enhabit’s initiatives to improve admissions after 12 straight quarters of negative samebranch admissions growth were working, the Company surely would have provided evidence of that. It has not.
If Enhabit had instituted a meaningful cost-saving initiative, the Company surely would have provided evidence of that. It has not.
As we have repeatedly shown, stockholders have heard many optimistic promises from Enhabit over the past two years. Time and again, the Company’s results have failed to live up to its promises.
Enhabit Has Made Misleading and False Claims Throughout This Proxy Contest
During this process, Enhabit has repeatedly made misleading or outright false statements—the most egregious examples are below.
6 Enhabit’s June 24, 2024, press release. 7 Comments made by CEO Barb Jacobsmeyer on the Company’s 4Q 2022 earnings call on February 15, 2023. 8 Enhabit’s June 24, 2024, press release. 9 Enhabit’s July 8, 2024, press release
10 Slide 4 of Enhabit’s July 8, 2024, investor presentation supplement. 11 Enhabit’s July 1, 2024, press release. 12 Glass Lewis report from July 18, 2024. Permission to quote neither sought nor obtained. 13 Oppenheimer research note, May 9, 2024, which was cited on slide 31 of Enhabit’s July 1, 2024, investor presentation. Permission to quote neither sought nor obtained. 14 Slide 49 of Enhabit’s July 1, 2024, investor presentation. 15 Ibid.
The AREX Slate is Best Positioned to Deliver the Change that Enhabit Urgently Needs
Enhabit’s consistent financial and operational underperformance has been undeniable, and we believe that the current Board has clearly failed to effectively oversee management—a failure that has been driven by a lack of industry-specific expertise.
The candidates on the AREX Slate, who have more than 40 years of cumulative experience in the home health and hospice industries, possess the needed skills and industry-specific expertise to help address Enhabit’s ongoing challenges, to effectively guide and support management, and to help create long-term stockholder value.
The Choice is Clear
Enhabit has immense potential given its high quality of care, scale, and strong competitive positioning in the secularly growing home health and hospice industries. Reflecting this potential, the AREX Slate has developed a comprehensive and credible plan that we believe can improve Enhabit’s EBITDA by at least 50%.
What the AREX Slate offers stands in stark contrast to the current Board, which has presided over two years of broken promises, declining expectations, and repeated excuses, with no accountability for poor performance—and this is what stockholders can continue to expect if the status quo persists.
We urge stockholders to vote for all seven members of the AREX Slate on the WHITE Proxy Card at the upcoming Annual Meeting. We believe this will ensure that Enhabit has a Board with the right experience and skills to effectively oversee and support management and to help Enhabit realize its full potential, which should lead to significant value creation for all stockholders.
Thank you for your support
Andrew Rechtschaffen
Managing Partner
James T. Corcoran
Partner
Source:
https://www.sec.gov/Archives/edgar/data/1800261/000092189524001612/ex1dfan14a12397015_072224.pdf