Shareholder rights law firm Johnson Fistel, PLLP has launched an investigation into whether board members of Select Medical Holdings Corporation (NYSE: SEM) breached their fiduciary duties regarding the proposed sale of the company for $16.50 per share.
The investigation focuses on whether the board conducted a fair process to maximize shareholder value in the take-private transaction, according to a statement released May 1. The deal, announced March 2, involves a consortium led by Executive Chairman Robert A. Ortenzio, executive Martin F. Jackson, and private equity firm Welsh, Carson, Anderson & Stowe.
Under the agreement, the consortium, which already owns approximately 11.8% of Select Medical’s stock, would acquire all outstanding shares they do not already own. The transaction is expected to close in mid-2026, pending shareholder and regulatory approvals. The waiting period under the Hart-Scott-Rodino Act expired on April 27, according to a company filing.
The investigation introduces legal risk to the deal’s valuation and timeline as the healthcare provider navigates a mixed operational environment. In its first quarter ended March 31, Select Medical reported a 5% increase in total revenue to $1.42 billion, but its adjusted EBITDA fell 6.5% to $141.6 million from the prior-year period.
Segment Performance Diverges
The company’s financial results highlight a sharp divergence in its main business lines. The inpatient rehabilitation hospital segment performed strongly, with revenue increasing 14.5% to $351.9 million and adjusted EBITDA growing 15.1% to $81.1 million. The segment’s occupancy rate rose to 83%.
In contrast, the critical illness recovery hospital segment saw its adjusted EBITDA fall 15.3% to $73.4 million, with its margin contracting to 11.5% from 13.6% a year earlier. On an earnings call, management attributed some of the pressure to a $13 million to $14 million negative impact from lower conversion rates for Medicare Advantage patients.
The outpatient rehabilitation segment also experienced margin pressure, with adjusted EBITDA declining 9.4% to $22.0 million. CEO Thomas Mullen noted on the call that this included approximately $1 million in costs related to closing four clinics in Oregon as part of a broader market review.
The investigation by Johnson Fistel could scrutinize whether the $16.50 per share offer adequately reflects the value of Select Medical's high-performing rehabilitation assets, especially in light of the pressures facing its other segments. The next key event for investors will be the shareholder vote on the transaction, the date of which has not yet been announced.
This article is for informational purposes only and does not constitute investment advice.
