On January 19, Encompass Health Corporation, a national leader in integrated healthcare offering facility-based and home-based patient care, announced its intention to spin off its home health and hospice business to form an independent, publicly traded company and to rebrand as Enhabit Home Health & Hospice. The establishment of Enhabit Home Health & Hospice will further strengthen Enhabit’s focus on high-quality, cost-effective care delivered in the home setting.
The Encompass Health Board of Directors believes the spinoff will provide significant benefits to both businesses and their stakeholders, including improving the strategic and operational flexibility of each business, increasing the focus of each management team on its business strategy and operations, allowing each business to adopt a capital structure and investment policy best suited to its financial profile and business needs and providing each company with its own equity currency to facilitate acquisitions and to better incentivize management.
Encompass Health already revealed during its last earnings call in October that it would be pursuing a spinoff over a merger or sale. The company received some pushback when an activist investor, Jana Partners, which owns more than 2% of Encompass Health stock, was urging the company to re-engage with other parties that could make a merger viable. Although the uncertainty surrounding the spinoff – and when it would materialize- made investors wary, the recent announcement should ease those concerns.
“Today’s announcement, particularly management’s reiteration of their intent to complete the spin-off sometime in [the first half of 2022], should address these lingering concerns and prompt investors to revisit and re-run their sum-of-the-parts analysis, which, given where comparable companies are trading, point to potential stock upside to $90 per share,” Jefferies analysts wrote in a note.
Encompass Health’s current footprint includes 145 hospitals, 251 home health locations and 96 hospice locations. The home health and hospice segment posted revenues of about $273.9 million in the third quarter of 2021
The spin-off, which is expected to be tax-free to Encompass Health’s shareholders, will result in Encompass Health’s shareholders owning stock in both companies. It is expected to take place in the first half of 2022, subject to various regulatory conditions.
Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC are acting as financial advisors and Wachtell, Lipton, Rosen & Katz and Bradley Arant Boult Cummings LLP are serving as legal advisors to Encompass Health.
