By Svea Herbst-Bayliss
(Reuters) -Institutional Shareholder Services (ISS) said on Thursday that Enhabit shareholders should choose three AREX Capital Management director candidates for the nine-member board, saying the company needs more expertise in home care, hospice and financial reporting of listed companies.
The prominent proxy advisory firm, whose recommendations often guide shareholder votes on proposed mergers and which sits on a board, said AREX has convincingly demonstrated the need for new directors.
But the hedge fund failed to convince ISS to oust a majority of the two-year-old company’s directors, the report reviewed by Reuters found.
AREX asks investors to replace seven directors to help turn around poor financial performance. It has also prompted the home health and hospice provider to put itself up for 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 an operational perspective, indicates that some degree of change is required at board level,” ISS wrote.
Enhabit’s share price has fallen nearly 60% since it was spun off from service provider Encompass Health (NYSE 🙂 in July 2022. The stock rose 2.7% to close trading Friday at $9.48.
ISS recommended votes for AREX candidates Gregory Sheff, who has experience in home health operations, Anna-Gene O’Neal, who has experience in a hospice, and Mark Ohlendorf, who has experience as a chief financial officer of a publicly traded company.
ISS also wrote that a more limited number of new directors could “provide effective oversight of management without making drastic changes that could jeopardize the early signs of a turnaround.”
Enhabit on Friday urged shareholders to vote for all nine nominees, adding that it disagrees with ISS’s recommendation because crucial experience would be lost by replacing the directors.
“We are pleased that ISS recognizes our performance over the past two quarters and agrees with the company
Changing course now and transferring control of the board to AREX is not in the best interests of the company’s shareholders,” Enhabit said in a statement. expertise in the hospice industry on Enhabit’s board and solidified our advocacy for meaningful change in the boardroom.”
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 Harbor Point Capital Management in March 2023.
AREX told Enhabit last year that it wanted the company to commit to immediately launching a strategic review before the end of 2023. Enhabit decided in May to continue as an independent, publicly traded company after evaluating a range of strategic options.
