Activist hedge fund firm AREX Capital Management will mount a boardroom challenge at US home health and hospice services provider Enhabit, arguing that new directors are needed to help reverse poor financial performance, according to a report by Reuters.

The report cites unnamed sources familiar with the matter in revealing that Arex, which wants Enhabit to put itself up for sales, privately nominated seven director candidates, all of whom have healthcare and capital markets experience, in March, during the company's nominating window. The nominees reportedly include AREX partner James Corcoran.

Enhabit, which was spun off from post-acute healthcare services provider Encompass Health in July 2022 and has since seen its shares lose more than half of their value, this week said it intended to continue as an independent public company, having evaluated a range of strategic options.

According to one Reuters source, AREX kept its nominations private until now because it did not want to disrupt the strategic review process.

The Enhabit board currently has 13 members but will be reduced to nine at the company's annual meeting later this year.