After receiving “serious interest” but no official bids from possible buyers, the directors of Dallas-based Enhabit Inc. have decided the provider of home health and hospice services will remain independent and publicly traded.

The directors of Enhabit last August launched their strategic review—barely a year after completing the separation of its businesses from Encompass Health Inc.—with the help of investment bank Goldman Sachs. The move came a few months after a major shareholder pushed for governance changes and the exploration of strategic alternatives, which typically means finding a merger partner or a buyer for all or large parts of the company.

That work, however, has not resulted in a deal—with industry and broader macroeconomic pressures largely to blame.

“Uncertain regulatory developments, including Medicare reimbursement policies throughout the healthcare industry and an evolving antitrust landscape, a difficult healthcare operating environment, and persistently high interest rates ultimately stifled possibilities for a transaction,” Board Chair Leo Higdon said in a statement. “Considering this, and other strategic alternatives reviewed with advisors during the review process, the board determined the best way to enhance shareholder value at this time is to continue to operate as a stand-alone business.”

Enhabit President and CEO Barb Jacobsmeyer and her team last week reported a first-quarter net profit of about $200,000 on net service revenues of $262 million. In the same period of last year, those numbers were $2.7 million and $265 million, respectively. Higher home health employee wages (which were offset by some cost cuts) and a shift to more non-Medicare admissions hurt earnings but Jacobsmeyer voiced her confidence in the path being taken.

Nowhere near as upbeat about Enhabit’s prospects are the managers of Arex Capital Management LP, the firm that last year called for a sale and a board overhaul. In a statement reacting to Enhabit’s announcement, Arex leaders—who control nearly 5 percent of the company’s shares—said they were disappointed with the call to continue to go it alone.

“We do not believe that this failure reflects Enhabit’s intrinsic value or strategic potential,” the Arex team wrote. “Rather, this failure lies with Enhabit’s board.”

A proxy fight now looms: In its statement, Arex said it had nominated seven candidates for board seats in March but had kept that quiet while the strategic review was wrapping up. The firm’s slate includes former LHC Group Inc. executive Maxine Hochhauser, former Brookdale Senior Living Inc. President Mark Ohlendorf as well as Gregory Sheff, a former leader of Humana Inc.’s home health services group.

For its part, the Enhabit board is moving ahead with a trimming down of its numbers. Launched last year, that plan will have four of its 13 members—all legacy Encompass directors (Higdon among them) who have helped Enhabit move into its independence—step down at the company’s upcoming annual meeting. They will not be replaced by the company, which will shrink Enhabit’s board to nine members.

Shares of Enhabit (Ticker: EHAB) fell more than 10 percent after directors said May 8 they had concluded their strategic review and have only recovered about half of that ground since. In midday trading May 14, they were changing hands around $9.05. That gives the company a market capitalization of about $455 million, about $120 million less than when the board announced its review plans last summer.


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