A major shareholder is calling for compounder A. Schulman Inc. to be sold, saying its value is not properly reflected in the public marketplace.
And as if that is not enough turmoil, Schulman also announced June 28 that profit for its fiscal third quarter will be one-third lower than expected.
A sale was proposed in a June 28 letter from James Mitarotonda, founder of New York investment firm Barington Cos. Equity Partners LP to Schulman President and Chief Executive Officer Terry Haines. Barington, in partnership with several other firms, has acquired almost 6 percent of Schulman stock since the start of the year.
In the letter - included in a July 1 filing with the Securities and Exchange Commission - Mitarotonda recommends that Schulman retain an investment banker to explore the sale of the company. He points out that Schulman's per-share stock price dropped about 1 percent in the three-year period ended Feb. 28, even though stockholders' equity per share increased more than 45 percent in that period.
``A review of the company's stockholders' equity and share-price performance over the past 10 years shows a similar divergence,'' Mitarotonda wrote. ``In light of the above, we feel that a sale of the business is the best course for the company to pursue at this time.''
Since 2002, Barington has been involved in battles to gain control of four Internet businesses - music providers Musicmaker.com and Liquid Audio, domain-name registry Register.com and testing services firm Keynote Systems Inc. - as well as footwear retailer Pic-Way Shoes. The Liquid Audio and Pic-Way scenarios ended in proxy fights.
In a June 14 news release, Schulman officials said they already had met with Barington executives and that they agreed that Schulman stock was ``an excellent value.'' Haines was reached by phone July 1, but declined to comment. Officials with Barington could not be reached for further comment.
A compounding industry official familiar with Schulman said he is not convinced a sale of the company would benefit shareholders. He said he also doubts if a buyer could be found for a company of Schulman's size.
The official added that another possibility for Schulman could be to use its available cash to buy out Barington's position in the company.
Saul Ludwig, a stock analyst who covers Schulman for Keybanc Capital Markets in Cleveland, said Schulman ``clearly is a company with much more potential than what's being delivered.''
``Schulman has done very well in Europe, but they've struggled for years in North America,'' Ludwig said. In responding to Barington, Ludwig said options for Schulman now include a stock buyback, restructuring, introduction of new products or finding a way to get consistent performance from North American operations.
On the earnings front, analysts had expected per-share profit of 30 cents, but officials with Fairlawn, Ohio-based Schulman said earnings are expected to be about 20 cents per share. Officials cited lower-than-expected demand from all markets in North America, including automotive. Customers also have been relying on inventories they had built to battle rising resin prices.
Profit margins were lower than anticipated because of the lag in passing on material cost increases, officials added. Schulman's sales and earnings in Europe also were lower than anticipated because of soft economic conditions.
Schulman generates about 70 percent of its overall sales from Europe and about 45 percent of overall sales from the automotive market. The firm will report third-quarter results July 7.
Schulman is one of North America's five largest compounders, according to a Plastics News estimate. The firm employs 2,400 at 14 sites worldwide.