Enterprise: eHealth is a medical health insurance market with a expertise and repair platform that gives client engagement, schooling and medical health insurance enrollment options. Their mission is to attach each particular person with the best high quality, most reasonably priced medical health insurance and Medicare plans for his or her life circumstance. The corporate operates in two segments: (i) Medicare and (ii) Particular person, Household and Small Enterprise. The Medicare phase represents a lot 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 were bought by members who used their providers.

Inventory Market Worth: $1.8B ($70.04 per share)

Proportion Possession:  7.00%

Common Value: $56.16

Activist Commentary: Starboard is a really profitable activist investor and has intensive operational activism expertise serving to boards and administration groups run firms extra effectively and enhancing margins. That is their one hundred and first 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 eighteen.1 months.

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 Assembly: (i) Peter A. Feld, managing member and head of analysis of Starboard Worth; (ii) James E. Murray, president and chief working officer of Magellan Well being, 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 Well being Inc.; and (iv) Steven J. Shulman, former director of HealthMarkets, Inc., a competitor to eHealth and former chairman and CEO of Magellan Well being Inc. Starboard additionally said that it has engaged, and intends to proceed to have interaction, in discussions with administration and the board relating to varied gadgets together with the current financing, monetary and working outcomes, and the composition of the board, amongst different matters.

Starboard has been trying on the firm for some time, however acquired its whole stake within the final 60 days. They purchased their stake with a mean 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 value plummeted following the information of a questionable financing transaction with H.I.G. Capital.

eHealth has a number of important tailwinds such because the child boomers getting old into Medicare, over indexing to Medicare Benefit – eHealth’s largest enterprise line, and penetration on-line rising within the mid-teens as Covid quarantining has lessened the usage of bodily brokers and have extra purchasers signing on digitally. Nonetheless, the corporate has not been capitalizing on these tailwinds. Scott Flanders, eHealth CEO, made a serious blunder in 2019 by rising income at any price, together with excessive acquisition prices and short-term purchasers, resulting in a really excessive churn, low margins and sluggish development in comparison with friends who grew at 100% final 12 months. Flanders has requested the board for a second likelihood to get it proper, and he’s getting one.

Till every week in the past, the board has consisted of seven administrators, 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 Government Capital settled its proxy struggle with the corporate by naming John Hass, former CEO of Rosetta Stone, to the board. That doesn’t make sense in any language. The corporate wants a professional, skilled board that may assist Flanders, but additionally holds him accountable if he’s unsuccessful.

That’s 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 can have three new administrators on its ten-person board.

Starboard nominated 4 administrators, though solely three seats will probably be up this 12 months.

Over-nominating administrators is one thing that Starboard usually does to offer 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 administrators up for election in 2021. Greater than probably there will likely be three seats and including two or three skilled administrators from Starboard ought to put the corporate in an excellent place to carry administration accountable throughout this significant time. Actually Stephen Schulman, former CEO of Magellan Well being, and James Murray, a 28-year veteran of Humana, have greater than sufficient related expertise.

As soon as on the board, the chance is to assist administration execute extra effectively by decreasing buyer acquisition prices and specializing in good, long-term clients. This may result in a a lot decrease churn fee, 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.