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Activist Barington Wants Specialty Chemicals Company Omnova to Break Up

December 4, 2014
Chemical Value Chain
Activist Barington Capital Group LP wants chemicals company Omnova Solutions Inc. to break up, according to a letter the activist sent the company on Wednesday.
 
Barington, which garnered attention last year when it first proposed splitting up Olive Garden parent Darden Restaurants Inc., believes Omnova has underperformed and would do better focusing on its largest operations, the letter said.
 
The investor controls a roughly 2% stake.
 
Omnova operates two business segments: performance chemicals, which includes chemicals and coatings used in a broad range of markets from magazine printing to the oil and gas industry, and engineered surfaces, which includes specialty fabrics and plastics used in autos and carpets, among other things. The performance-chemicals unit makes up about 75% of total revenue and operating profit.
 
Barington is calling on Omnova to explore selling the smaller engineered-surfaces business and bulking up the remaining businesses with hiring and acquisitions. The letter criticized the stock performance and said the company should use its cash to buy back the beaten-down shares.
 
Omnova shares rose 7.6% to $7.24 on Wednesday. The shares had fallen 26% this year though Tuesday.
 
Omnova said in a statement Wednesday that its board and management are “committed to act in the best interests of the company and all of its shareholders” and “continue to evaluate all options for generating improved shareholder value.”
 
Several companies in the chemicals industry that have diverse business lines are facing calls from activist investors to break apart. Dow Chemical Co. in November added two new board members proposed by activist Daniel Loeb , who had previously called for splitting up the company. DuPont Co. is facing similar pressure from Trian Fund Management LP. Both Dow and DuPont have rejected the activists’ specific calls, though both have taken their own steps to shed some business lines.
 
Omnova’s August-ended quarter saw profit drop sharply, which it blamed on weak underlying paper and carpet markets. Chairman and Chief Executive Kevin McMullen called the results disappointing, but he said the company was taking steps to hire sales people and explore acquisitions in the core businesses, while also cutting costs. At the time, he said the company’s management was aligned with creating shareholder value.
 
Barington will seek to discuss changing the board and splitting the chairman and CEO roles, the letter said. Those are typical requests from the firm, which earlier this week reached a pact to add its founder and Chief Executive James Mitarotonda to the board of software company Ebix Inc.
 
Mr. Mitarotonda has experience in similar businesses as Omnova, and been on the board of an industrial plastics company A. Schulman Inc. since 2005.
 
Corrections & Amplifications
 
Omnova operates two segments, performance chemicals and engineered surfaces. An earlier version of this story incorrectly referred to the performance chemicals segment as performance materials.
 
By David Benoit
 

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