Following over a year’s worth of public exchanges about the strategic direction of Enhabit Inc. (NYSE: EHAB), the company’s stockholders have voted to elect an activist investor-approved board of directors nominee.
During Enhabit’s annual meeting of stockholders on Thursday, the company’s stockholders voted to elect eight of Enhabit’s director nominees, as well as Mark W. Ohlendorf, a nominee proposed by AREX Capital, the activist investor.
Current Enhabit CEO Barb Jacobsmeyer was also among the director nominees.
New York-based hedge fund AREX Capital owns 4.9% of Enhabit’s common shares. The hedge fund has been openly critical of Enhabit’s direction as a company.
Specifically, AREX Capital spoke out against the company’s board decision to remain an independent public company, and not to pursue a sale or merger, following its strategic review.
“We are disappointed that Enhabit’s strategic review process has concluded without a sale of the company,” AREX Capital wrote in a press statement in May. “We do not believe that this failure reflects Enhabit’s intrinsic value or strategic potential. Rather, this failure lies with Enhabit’s board.”
At the end of May, AREX Capital released a letter which reiterated its issue with Enhabit’s board of directors.
“We believe that it should be clear to the board that a significant reconstitution of its membership is required and warranted,” the hedge fund wrote. “A Board that has presided over a more than 60% decline in the company’s share price over a two-year period, in our view, should have the humility to acknowledge that it cannot and should not continue in its current form.”
Jacobsmeyer addressed this letter during her appearance at Leerink Partners Healthcare Crossroads conference in May.
“We have a strong, very experienced board of directors that have helped us navigate these waters over the last couple of years,” she said. “We’re really confident in the future and with the leadership of our board.”
In June, Enhabit defended itself again ahead of the annual meeting of stockholders.
“AREX’s public statements contain numerous mischaracterizations, cherry-picked time periods and misleading assertions, which we will address in future communications,” Enhabit wrote. “However, we wholeheartedly agree with AREX on the following: ‘The only thing that matters now is setting the Company on a path that will unlock Enhabit’s substantial value for all stockholders.’”
That same month, AREX Capital released a six-page letter in response.
“The last two years have not been easy for the home health and hospice industries, but Enhabit’s peers have demonstrated an ability to navigate these challenges without substantially reducing their profitability. While peers caught colds, Enhabit caught pneumonia,” AREX Capital wrote. “We believe Enhabit’s significant underperformance versus peers is a direct result of the Board lacking the necessary industry expertise to hold management accountable.”
In July, Institutional Shareholder Services (ISS) – an independent proxy advisory firm – backed AREX Capital, recommending that shareholders vote for three of AREX Capital’s nominees.
These nominees were Anna-Gene O’Neal, the previous president of Brookdale Senior Living’s (NYSE: BKD) health care services division, Mark W. Ohlendorf, former CFO of Brookdale, and Dr. Gregory S. Sheff, the previous head of home solutions at Humana Inc. (NYSE: HUM).
“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,” AREX partners said in a press statement at the time. “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.”
Indeed, it’s been a rocky road to the Enhabit’s annual meeting of stockholders. One that’s not completely over just yet. The independent inspector of elections still needs to certify the results of the votes.
When the votes are finalized, directors will each serve a term of one year that is set to expire in 2025.
All in all, Enhabit avoided a takeover of its board. At the same time, AREX Capital was able to make a dent with its at least one of its board nominations.
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