Company: eHealth Inc. (EHTH)

eHealth offers private well being insurance plan trade solutions to persons, people, and tiny enterprises in the United States and China. Its e-commerce platforms arrange and present wellbeing insurance policy info in several formats that allow individuals, households, and compact companies to study, evaluate, assess, and purchase a selection of health and fitness insurance policies plans. The firm’s Medicare-relevant wellness insurance policy ideas involve medicare benefit, medicare dietary supplement, and medicare section D prescription drug plans and ancillary solutions, which includes dental, vision, and limited and prolonged term disability insurance coverage ideas. It marketplaces wellbeing insurance coverage designs by way of its web-sites, this sort of as eHealth.com, eHealthInsurance.com, eHealthMedicare.com, Medicare.com, PlanPrescriber.com, and GoMedigap.com, as effectively as as a result of a community of advertising companions. The enterprise also licenses its wellness insurance policies ecommerce technology that allows health and fitness insurance coverage carriers, brokers, and brokers to industry and distribute well being insurance plan plans on the web and presents on the web sponsorship and marketing products and services.

Inventory Industry Price: $1.67 billion ($64.25)

Activist: Hudson Executive Capital

Percentage Ownership: 5.80%

Regular Price: $62.90

Activist Commentary:  Hudson Govt Cash (“HEC”) was launched in 2015 by Douglas Braunstein, formerly of JP Morgan, and Jim Woolery, previously of Cadwalader, Wickersham & Taft, two activist protection advisors with no prior record of activist investing. Their thesis at the time was to use their community of CEO associates to supply amicable engagements at $500 million to $15 billion firms. They firmly said that their method was to operate constructively with businesses on operations and method to support them in maximizing value for their shareholders and that Hudson will not operate a proxy struggle. Since then, Woolery has left the firm and they threatened a proxy fight and filed a lawsuit at United states of america Systems Inc. (USAT), prior to coming into into a settlement agreement with the firm, indicating that their ideological “activist product” is damaged. Hudson Govt has had spectacular 13D returns – 91.60% vs . 24.87% for the S&P 500 more than the exact interval. Nevertheless, they have only taken board seats twice ahead of, just one of which is nonetheless are living and the other which was their worst accomplishing 13D campaign. They unquestionably have accomplished nicely as value traders, but there is no proof that they have extra worth as activist buyers or administrators.

What is actually happening:

On March 10, 2021, Hudson and the business entered into a cooperation arrangement, pursuant to which John Hass, previous CEO of Rosetta Stone, was appointed to the board as a class I director with a term expiring at the 2022 annual assembly and as a member of the method committee of the Board. The organization also agreed to engage in a system to mutually agree upon a second director in the future 45 times. Hudson agreed to abide by customary voting and standstill provisions.

Powering the scenes:

Hudson submitted a 13D on February 19, 2021 and in the past week submitted an amendment reporting that they settled with the firm for two board seats – a person seat for John Hass, the former CEO of Rosetta Stone, and a further seat that will be preferred by Hudson and the enterprise. This is Hudson’s very first board settlement where by they did not get a seat for an Hudson govt, which signifies a probable deficiency of motivation and long-term emphasis. Despite this, they nonetheless signed a standstill arrangement. In addition, they evidently would have favored to have much better obtain to the board as the standstill arrangement explicitly states: “For the avoidance of doubt, the Functions admit and agree that Hudson intends to proceed to engage in non-public discussions with customers of management of the Firm and the Board . . .”

One more section of the settlement that is really worth noting is the reimbursement of expenditures. Although reimbursement of charges is conventional in activist settlement agreements, Hudson has a questionable previous with these kinds of reimbursements. On April 26, 2020, Hudson settled its proxy struggle with Usa Systems (USAT) for a the greater part of the board. On June 29, 2020, the new USAT Board of Administrators unanimously authorized the issuance of $4.5 million of limited inventory to Hudson Government for the reimbursement of 3rd-celebration fees and bills incurred by Hudson Government in relationship with its proxy solicitation. In our impression this was unusual and egregious for two major causes: (i) the whole current market capitalization of the corporation was only $354 million, and (ii) just a few weeks prior to the settlement Hudson believed in an SEC filing that their complete costs ended up about $1 million.

In this circumstance, the settlement settlement states that Hudson will be reimbursed for its “sensible, documented out-of-pocket expenses and costs” but does not give an estimate of what those people expenditures are like we see in other settlement agreements. They do not disclose this irrespective of the actuality that they know what that quantity is, as the arrangement specially states that the expense reimbursement shall not “exceed the combination quantity earlier agreed to by the Get-togethers”. Activist directors frequently urge the firm to err on the side of above-transparency and disclosure. Hudson does not show up to share this philosophy, at the very least with respect to the reimbursement of their costs.

Ken Squire is the founder and president of 13D Observe, an institutional analysis assistance 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.