An unhappy investor wants to make some big changes at A. Schulman Inc., a major compounder and distributor based in Fairlawn, Ohio.
In an Oct. 11 news release, Barington Capital Group LP of New York said it plans to nominate three new directors at Schulman's annual meeting Dec. 8 in Fairlawn. That trio includes James Mitarotonda, Barington chairman, president and chief executive officer, and former plastics industry executives Phillip Ashkettle and Thomas Bohrer.
Ashkettle has more than 30 years of industry experience at Ashland Chemical Inc., Reichhold Chemicals Inc. and M.A. Hanna Co. He was named to the top spot at Hanna in 1999, but was replaced shortly before that firm merged with Geon Co. to form PolyOne in 2000.
Bohrer has more than 35 years of industry experience with Hoechst Celanese Corp. and International Specialty Products Inc. He also sits on the boards of three plastics firms.
Ashkettle and Bohrer currently work as consultants to plastics and chemical companies and venture capital firms.
Since January, Barington has compiled a stake of almost 9 percent in Schulman stock. In the news release, Barington officials said they are ``deeply concerned by the apparent failure of the directors ... seven of whom have been in office since 1995, to maximize shareholder value.''
Barington officials added that if their directors are elected, they will ``work constructively with the other members of the board to improve the company's operations and share-price performance.''
The terms of three of Schulman's 10 board members expire in December: Willard Holland, former chairman of FirstEnergy Corp.; Peggy Miller, president of South Dakota State University and former president of the University of Akron; and John Yasinsky, former chairman and CEO of Omnova Solutions Inc., a plastics and chemicals firm in Akron, Ohio. All three are up for re-election.
Mitarotonda was unavailable for comment, but in an Oct. 12 news release he said, ``Even a cursory review of the company's share-price performance and corporate government policies ... clearly reveals that it is time for a change.''
Barington said Schulman's stock price fell 37 percent between 1995 and 2005, while the S&P 500 stock index was up 112 percent in that same period. In a letter Mitarotonda sent to the Schulman board Sept. 27, he outlined several ways in which the company could improve, including:
* Restoring Schulman's North American operations to profitability by eliminating expenses related to capacity that's already shut down. In recent years, Schulman has reduced its compounding capacity by about 40 percent, mainly by closing large plants in Akron and Orange, Texas.
* Reducing net working capital by at least $120 million, partly by eliminating between $60 million and $100 million of additional excess inventory.
* Reducing selling, general and administrative expenses. Barington claims those expenses now make up 71 percent of Schulman's gross margin, after making up only 57 percent in 2000.
* Improving gross margins to 25 percent, from 14-15 percent, partly by more efficient procurement practices and by holding sales representatives accountable for improved gross margin instead of improved sales.
Barington officials added that they ``are troubled by the fortress of anti-takeover defenses that [Schulman] has in place which facilitate the entrenchment of directors and senior management.''
For example, according to Barington, any stockholder attempting to acquire a 15 percent stake in Schulman can do so only with board approval. Barington officials said that measure was adopted without stockholder approval.
Barington also objected to Schulman Chief Financial Officer Robert Stefanko also serving as chairman of the board.
``As a result, [Schulman] suffers from the extremely unusual situation where the supposed leader [Stefanko] of its board of directors - which is responsible for ... monitoring and evaluating the CEO's performance ... reports to the company's CEO on a daily basis,'' Barington officials said. ``We are becoming increasingly concerned that the primary focus of the board has been on the interests of its executive officers rather than those of its stockholders.''
Schulman officials have declined to comment on any of Barington's claims. In the firm's only public comment, President and Chief Executive Officer Terry Haines said in a June 14 news release that Schulman officials ``are always open to meeting with investors to discuss our business and strategies.''
Through the first nine months of Schulman's fiscal 2005, profit was down 8 percent to $25.6 million, even though sales were up 18 percent to almost $1.1 billion. Schulman generates about 70 percent of its sales from Europe, where nine-month sales were up 24 percent.
Schulman derives about 70 percent of its sales from compounding and color concentrate production of products primarily based on PE, PP and PVC. The remainder of the firm's sales comes from resin distribution.
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 Payless Shoesource. The Liquid Audio and Payless scenarios ended in proxy fights.
The Barington challenge is the first Schulman has faced since 1998, when the California Public Employees Retirement System (CalPERS), which at the time was a major shareholder, complained about the company's financial results and management.
Shortly afterward, Schulman reduced the size of its board from 13 to 10. One of the board members who stepped down was a Schulman executive, while another recently had retired from the firm. Schulman officials said at the time that the board moves had nothing to do with CalPERS.
