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MMI Investments, L.P. Calls on Chemed Board to Pursue a Tax-Free Spin-Off of One of Its Two Businesses
Date:2/12/2009

stor, we believe Chemed's two divisions, Roto-Rooter and Vitas, share an extremely attractive cash flow profile. This financial characteristic appears to be the only thing that Roto-Rooter and Vitas share. These diverse businesses, plumbing/drain-cleaning and hospice care, have separate operations, brands, management, customers, economic sensitivities, financing needs, different potential strategic alternatives and fair market valuations. Logic clearly dictates that Roto-Rooter and Vitas do not belong together, and but for Chemed's lineage as a diversified conglomerate, they would already be separate entities. We believe this combination creates no synergy and is inhibiting value realization, and that these two businesses should be separated by means of a tax-free spin-off.

We have enclosed herewith an analysis that compares Chemed's current valuation and stock price with that of comparable public companies to each of its subsidiaries and with the valuations ascribed to such companies in takeover transactions. Subject to the assumptions set forth in the enclosed analysis, the potential outcomes from a spin-off are impressive: a stock price of more than $55 to nearly $62 on an independent trading basis, and more than $68 to nearly $71 per share if both businesses were subsequently taken over. A takeover of these businesses in the present structure is highly unlikely due to the lack of a single strategic acquirer for both businesses. These ranges imply a baseline potential increase of approximately 40% to 75% from Chemed's February 11th closing price of $40 per share. Ironically, we believe the greatest limitation of this analysis (that there is currently only one publicly-traded comparable for Roto-Rooter) makes our strongest point: nearly all of Roto-Rooter's public comparables have been acquired already.

We have repeatedly heard management of Chemed list numerous reasons why a tax-free spin-off is not possible. These have i
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SOURCE MMI Investments, L.P.
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