Khrom Capital urges Acadia Healthcare to explore sale after ‘lost decade’

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By Siddhi Mahatole

(Reuters) -Khrom Capital Management, one of the largest shareholders of Acadia Healthcare, has called on the company’s board to launch a formal strategic review, including a potential sale, citing years of poor performance and governance failures.

The investment manager, in a letter to the company’s board, also highlighted eroding shareholder confidence in leadership and incremental changes that are no longer sufficient, Acadia said on Wednesday.

Khrom owns a 5.5% stake in the behavioral health provider.

The investor criticized the company’s board for a lack of accountability, citing long director tenures, minimal stock ownership and delayed governance reforms.

“Our board regularly evaluates all opportunities to enhance value for shareholders, and we remain steadfast in that commitment. We will continue to engage with our shareholders as we work to advance this goal,” Acadia’s spokesperson told Reuters.

Khrom also backed proposals from fellow activist Engine Capital, which last week called for operational improvements, asset sales and to add new directors to Acadia’s board.

“We believe that the board must immediately initiate a formal strategic review process, including the evaluation of a sale of all or part of the company,” Khrom Capital said in the letter.

It also called attention to missteps such as a failed UK expansion and rising leverage amid regulatory investigations.

The firm criticized executive bonuses awarded while the company was under a Department of Justice probe over alleged improper practices at its psychiatric hospitals and behavioral health facilities.

Khrom Capital said it was a “lost decade” for Acadia investors, as the stock has significantly declined over the period, while peers such as HCA Healthcare and Tenet Healthcare have delivered strong returns to shareholders.

The investment manager also said credible bidders exist, and urged the board to publicly initiate a competitive bidding process.

“There is no valid reason to delay or avoid conducting a strategic review,” Khrom said, warning it may nominate directors or rally shareholder support if the board fails to act.

(Reporting by Siddhi Mahatole in Bengaluru; Editing by Alan Barona and Devika Syamnath)