ISS suggest Enhabit shareholders elect three AREX Capital nominees to board

By Svea Herbst-Bayliss

(Reuters) -Institutional Shareholder Services (ISS) said on Thursday Enhabit shareholders should elect three AREX Capital Management director candidates to the nine-member board, arguing the company needs more expertise in home health, hospice and public company financial reporting.

The prominent proxy advisory firm, whose recommendations often guide shareholder votes on proposed mergers and who serves on a board, said AREX made a convincing case that new directors are needed.

But the hedge fund did not persuade ISS that a majority of the two-year-old company’s directors should be ousted, the report reviewed by Reuters said.

AREX is asking investors to replace seven directors to help reverse poor financial performance. It has also been pushing the home health and hospice provider to put itself up for a sale.

Investors will vote on July 25 unless the two sides reach an agreement before the meeting date.

“The company’s significant underperformance, both from a TSR (total shareholder return) and operational standpoint, indicate that a degree of change is needed at the board level,” ISS wrote.

Enhabit’s stock price has tumbled nearly 60% since it was spun off of post-acute healthcare services provider Encompass Health (NYSE:) in July 2022. The stock climbed 2.9% to trade at $9.52 in early Friday trading.

ISS recommended votes for AREX candidates Gregory Sheff, who has home health operations experience, Anna-Gene O’Neal, who has hospice experience, and Mark Ohlendorf, who has public company chief financial officer experience.

Enhabit on Friday urged stockholders to vote for all its nine nominees, adding it disagrees with ISS’s recommendation as critical experience would be lost by replacing the directors.

AREX said it is “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.”

AREX, which owns a 4.9% stake in Enhabit, is backing CEO Barbara Jacobsmeyer and director Barry Schochet for re-election. Schochet joined the board last year when the company reached an agreement with investors Cruiser Capital and Harbour Point Capital Management in March 2023.

AREX told Enhabit last year it wanted the company to commit to immediately start a strategic review before the end of 2023. Enhabit in May decided to continue as an independent, public company after having evaluated a range of strategic options.