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Enterprise: eHealth Inc. (EHTH)
Business: eHealth is a health and fitness insurance plan market with a technologies and services system that delivers buyer engagement, schooling and wellness insurance policy enrollment solutions. Their mission is to join each and every particular person with the highest excellent, most reasonably priced overall health insurance plan and Medicare ideas for their daily life circumstance. The firm operates in two segments: (i) Medicare and (ii) Personal, Family members and Smaller Business enterprise. The Medicare phase represents most of the business enterprise and constituted ~89% of income in 2020. eHealth derives a great deal of its revenues from fee payments paid out by wellbeing insurance plan carriers similar to ideas that have been acquired by customers who utilised their products and services.
Inventory Market place Benefit: $1.8B ($70.04 for every share)
Activist: Starboard Price
Proportion Possession: 7.00%
Regular Price: $56.16
Activist Commentary: Starboard is a very successful activist investor and has intensive operational activism knowledge helping boards and administration groups operate businesses additional efficiently and increasing margins. This is their 101st 13D submitting. In people 101 filings, they have averaged a return of 28.88% vs . 11.93% for the S&P500. Their common 13D maintain time is 18.1 months.
On March 11, 2021, Starboard despatched a letter to the company nominating the pursuing 4 director candidates for election to the firm’s board at the 2021 Once-a-year Conference: (i) Peter A. Feld, controlling member and head of exploration of Starboard Price (ii) James E. Murray, president and main working officer of Magellan Overall health, Inc. and former executive at Humana, Inc. (iii) Erin L. Russell, a skilled board member who serves as a board member at Kadant Inc. and Tivity Well being Inc. and (iv) Steven J. Shulman, former director of HealthMarkets, Inc., a competitor to eHealth and previous chairman and CEO of Magellan Wellbeing Inc. Starboard also mentioned that it has engaged, and intends to keep on to have interaction, in conversations with administration and the board with regards to various products like the current funding, money and running benefits, and the composition of the board, amid other matters.
Driving the Scenes:
Starboard has been seeking at the company for a when, but acquired its entire stake in the final 60 times. They bought their stake with an ordinary cost of $56.16 (the corporation was investing at $151.66 on March 31, 2020), obtaining their shares following the company’s share price plummeted following the news of a questionable funding transaction with H.I.G. Money.
eHealth has many considerable tailwinds such as the baby boomers getting older into Medicare, in excess of indexing to Medicare Advantage – eHealth’s largest business enterprise line, and penetration on the net rising in the mid-teenagers as Covid quarantining has lessened the use of actual physical brokers and have additional clients signing on digitally. Nonetheless, the organization has not been capitalizing on these tailwinds. Scott Flanders, eHealth CEO, made a important blunder in 2019 by escalating earnings at any value, together with large acquisition fees and quick-phrase customers, foremost to a pretty higher churn, minimal margins and sluggish progress in contrast to friends who grew at 100% final calendar year. Flanders has requested the board for a 2nd prospect to get it appropriate, and he is acquiring one.
Until eventually a 7 days ago, the board has consisted of 7 administrators, a the vast majority of whom have been on the board for over 12 many years and very several of whom have applicable sector practical experience. Then very last 7 days, Hudson Executive Capital settled its proxy struggle with the business by naming John Hass, previous CEO of Rosetta Stone, to the board. That does not make feeling in any language. The company wants a experienced, expert board that can enable Flanders, but also retains him accountable if he is unsuccessful.
That is where by Starboard’s nominees are integral. With the recent addition of a ninth director pursuant to a misguided favored stock issuance and a 2nd new director named at the future annual meeting pursuant to the Hudson settlement, the company will have a few new directors on its ten-person board.
Starboard nominated 4 administrators, whilst only three seats will possible be up this yr.
Over-nominating directors is anything that Starboard typically does to give them versatility in case seats are extra or if, in this circumstance, the firm decides to abide by great corporate governance practices and place all new directors up for election in 2021. A lot more than probably there will be a few seats and introducing two or three seasoned administrators from Starboard need to place the organization in a very good place to keep management accountable for the duration of this vital time. Surely Stephen Schulman, former CEO of Magellan Health, and James Murray, a 28-year veteran of Humana, have additional than ample appropriate experience.
As soon as on the board, the option is to assist administration execute extra successfully by reducing shopper acquisition expenses and concentrating on very good, lengthy-phrase buyers. This will lead to a considerably reduced churn amount, a much more sustained expansion and much better margins (at the moment eHealth is in the low teenagers as opposed to friends in the lower 30s).
Ken Squire is the founder and president of 13D Monitor, an institutional investigation company on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. eHealth is owned in the fund.
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