Enhabit Inc. (NYSE: EHAB) has officially launched a review of strategic alternatives, it announced late Wednesday. That review could ultimately lead to a sale, merger or “other strategic transaction.”
The company first announced its intent to launch a strategic reviews process on Aug. 10. Now, that process has been initiated.
“Enhabit is a leader in a valuable industry, providing a better way to care where patients prefer to receive their care,” the company wrote in a statement. “The Enhabit board and management team are aligned in their belief that the best way to enhance value for stockholders is to comprehensively review the company’s strategic alternatives, including a potential sale of Enhabit. We will pursue the pathway that enhances value for our stockholders and ensures we can continue to deliver exceptional care to our patients.”
The Dallas-based Enhabit is one of the largest independent providers of home health and hospice care in the country. Its footprint includes 255 home health locations and 108 hospice locations across 34 states.
Enhabit’s issues have been well documented over the past year. Namely, it has struggled with staffing and Medicare Advantage (MA) penetration. In recent earnings calls, company leaders have struck an optimistic tone after each revised MA plan contract, but ultimately, positive results have not quickly followed.
In the second quarter, overall net service revenue and home health revenue decreased by 2.1% and 2.9%, respectively, year over year.
The company spun off into its own public entity from Encompass Health Corporation (NYSE: EHC) in June of last year. At the time, its stock was being solid at $25 per share. That quickly was slashed in half. At market close Wednesday, the company’s stock was at just under $12 per share.
“Enhabit has satisfied the conditions in its Tax Matters Agreement, dated June 30, 2022, with Encompass Health Corporation to conduct a review of strategic alternatives and has formally initiated such process,” a press release read. “Certain transactions involving the company remain subject to additional conditions in the TMA, including securing an additional tax opinion with respect to the specific transaction, satisfactory to Encompass Health in its sole and absolute discretion, that such proposed transaction would not jeopardize the tax-free treatment of the spin-off of Enhabit.”
It’s worth noting that Enhabit’s peers are being bought up rapidly. Before it was even its own company, Humana Inc. (NYSE: HUM) acquired Kindred at Home. UnitedHealth Group’s (NYSE: UNH) Optum then acquired LHC Group, and is in the process of acquiring Amedisys Inc. (Nasdaq: AMED).
LHC Group, Amedisys and Kindred at Home – now CenterWell Home Health – are all top home health providers.
Enhabit now looks like it could be the next one to lose its independence through a sale.
In June, the New York-based hedge fund AREX Capital Management – a significant Enhabit shareholder – urged the company’s board to explore a sale in an open letter.
“Given Enhabit’s objectively challenged execution and share price performance, the board should fully explore the potential delivery of substantial and fair value to shareholders through a sale of the Company,” AREX wrote in the letter. “We are highly confident that a full and fair strategic alternatives review will make it very clear to the board that, as compared to the risks and potential rewards inherent in the status quo, a sale is the obvious way to maximize value for all shareholders.”
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