Exclusive-Activist Jana Partners pushes Encompass Health on potential merger

FILE PHOTO: A photo illustration shows a general practitioner holding a stethoscope in a doctor's office. REUTERS/Regis Duvignau

BOSTON (Reuters) - Activist investment firm Jana Partners wants Encompass Health to re-engage with interested third parties on a potential merger for its home health and hospice business before moving forward with a planned spin-off of the unit, sources familiar with the matter said on Tuesday.

Jana Partners, which owns more than 2% of Encompass Health, has teamed up with health care industry executive Edwin "Mac" Crawford and is privately pushing the Birmingham, Alabama-based company to make this change, the sources said. The sources, some of whom also invest in Encompass and were briefed on Jana's plans, are not permitted to discuss the private plans publicly.

The investment firm wrote to Encompass in November, urging management to pursue a possible merger or spin-off with a strategic partner instead of going it alone by separating its home health and hospice business into an independent public company through a carve-out IPO, spin-off, or split-off.

The company had told shareholders in late October that it planned to pursue a partial or full separation in the first half of next year.

The sources said that Jana believes there is interest from private firms in combining with the home health and hospice business. Jana has recently been contacting Encompass shareholders to discuss their views, the sources said.

Jana Partners and other shareholders believe combining the home health and hospice business with another industry player would better position the company to manage more challenging conditions in the healthcare industry, including a shortage of nurses. They believe such a move would also better address recent performance issues under its new management team, the sources said.

Encompass and Jana Partners did not immediately respond to a request for comment.

Encompass is currently valued at $6.4 billion. Its share price has dropped 15% in the last three months.

Jana first bought shares in Encompass in 2020 and has held discussions with management and the board away from the public eye since then. The firm has pushed Encompass to pursue a separation of the home health and hospice business, but more recently has argued for combining with another industry player to gain greater scale in a more challenging environment, the sources said.

Crawford has also invested in Encompass and has signaled privately that he would be ready to join the Encompass board, if necessary, as part of a dissident slate, the sources said.

The window to submit director nominations opens early next year.

Crawford, a former chief executive of Caremark before it merged with CVS in 2007, was named the top-performing healthcare technology and distribution CEO by Institutional Investor for several years and is widely considered to be one of the most successful turnaround executives in the health-care industry. He has worked with Jana on several healthcare-related investments, including Team Health Holdings and Labcorp.

Jana has built a reputation for working collaboratively and behind the scenes over the two decades since Barry Rosenstein founded the company.

(Reporting by Svea Herbst-Bayliss; Editing by Dan Grebler)

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