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Company: eHealth Inc. (EHTH)
Business: eHealth is a medical health insurance market with a expertise and service platform that gives client engagement, schooling and medical health insurance enrollment options. Their mission is to attach each particular person with the very best high quality, most reasonably priced medical health insurance and Medicare plans for their life circumstance. The firm operates in two segments: (i) Medicare and (ii) Individual, Family and Small Business. The Medicare section represents most of the enterprise and constituted ~89% of income in 2020. eHealth derives a lot of its revenues from fee funds paid by medical health insurance carriers associated to plans which have been bought by members who used their companies.
Stock Market Value: $1.8B ($70.04 per share)
Activist: Starboard Value
Percentage Ownership: 7.00%
Average Cost: $56.16
Activist Commentary: Starboard is a really profitable activist investor and has intensive operational activism expertise serving to boards and administration groups run corporations extra effectively and enhancing margins. This is their 101st 13D submitting. In these 101 filings, they’ve averaged a return of 28.88% versus 11.93% for the S&P500. Their common 13D maintain time is 18.1 months.
What’s Happening:
On March 11, 2021, Starboard despatched a letter to the corporate nominating the next 4 director candidates for election to the corporate’s board on the 2021 Annual Meeting: (i) Peter A. Feld, managing member and head of analysis of Starboard Value; (ii) James E. Murray, president and chief working officer of Magellan Health, Inc. and former govt at Humana, Inc.; (iii) Erin L. Russell, knowledgeable board member who serves as a board member at Kadant Inc. and Tivity Health Inc.; and (iv) Steven J. Shulman, former director of HealthMarkets, Inc., a competitor to eHealth and former chairman and CEO of Magellan Health Inc. Starboard additionally acknowledged that it has engaged, and intends to proceed to interact, in discussions with administration and the board relating to numerous gadgets together with the current financing, monetary and working outcomes, and the composition of the board, amongst different subjects.
Behind the Scenes:
Starboard has been wanting on the firm for some time, however acquired its whole stake within the final 60 days. They purchased their stake with a median price of $56.16 (the corporate was buying and selling at $151.66 on March 31, 2020), buying their shares after the corporate’s share worth plummeted following the information of a questionable financing transaction with H.I.G. Capital.
eHealth has a number of vital tailwinds such because the child boomers growing old into Medicare, over indexing to Medicare Advantage – eHealth’s largest enterprise line, and penetration on-line rising within the mid-teens as Covid quarantining has lessened the use of bodily brokers and have extra shoppers signing on digitally. However, the corporate has not been capitalizing on these tailwinds. Scott Flanders, eHealth CEO, made a significant blunder in 2019 by rising income at any price, together with excessive acquisition prices and short-term shoppers, resulting in a really excessive churn, low margins and sluggish development in comparison with friends who grew at 100% final yr. Flanders has requested the board for a second likelihood to get it proper, and he’s getting one.
Until per week in the past, the board has consisted of seven directors, a majority of whom have been on the board for over 12 years and only a few of whom have related trade expertise. Then final week, Hudson Executive Capital settled its proxy combat with the corporate by naming John Hass, former CEO of Rosetta Stone, to the board. That doesn’t make sense in any language. The firm wants a certified, skilled board that may assist Flanders, but additionally holds him accountable if he’s unsuccessful.
That is the place Starboard’s nominees are integral. With the current addition of a ninth director pursuant to a misguided most well-liked inventory issuance and a second new director named on the subsequent annual assembly pursuant to the Hudson settlement, the corporate could have three new directors on its ten-person board.
Starboard nominated 4 directors, though solely three seats will possible be up this yr.
Over-nominating directors is one thing that Starboard typically does to provide them flexibility in case seats are added or if, on this case, the corporate decides to abide by good company governance practices and put all new directors up for election in 2021. More than possible there will probably be three seats and including two or three skilled directors from Starboard ought to put the corporate in a superb place to carry administration accountable throughout this significant time. Certainly Stephen Schulman, former CEO of Magellan Health, and James Murray, a 28-year veteran of Humana, have greater than sufficient related expertise.
Once on the board, the chance is to assist administration execute extra effectively by reducing buyer acquisition prices and specializing in good, long-term clients. This will result in a a lot decrease churn price, a extra sustained development and higher margins (at the moment eHealth is within the low teenagers versus friends within the low 30s).
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service 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 within the fund.
