The dealReporter news service is reporting today that although some strategic buyers are interested in pieces of Fairlawn, Ohio-based compounder and distributor A. Schulman Inc., none are interested in paying a premium for the whole company. The story, on the London-based Financial Times Web site, depends a lot on a single source, who is not named but described as "claiming knowledge of the situation." It also cites an unnamed "industry banker" who said he did not see an opportunity to break up Schulman. Given that both sources are quoting the company's own point of view, it wouldn't be a surprise if at least one turned out to be a company executive or board member. But, frankly, the report rings true. Sure, Alcoa Inc. got a premium price for its packaging business, but does anyone out there really think Schulman could generate the same level of interest from buyers if it put the company on the auction block today? According to the report, there are buyers interested in Schulman's compounding plants in Europe (no surprise there). The source also claims that Eastman Chemical Co. is interested in parts of Schulman, and Wellman Inc. "has indicated interest on a partnership basis." That part is a little surprising, although Wellman itself already is in play. Schulman, meanwhile, continues to battle with dissident shareholder Ramius Capital. Yesterday, Schulman released a letter from board member Will Holland urging shareholders to reject a competing slate of directors offered by Ramius. Here's a copy of the letter:
Dear Fellow Shareholder: For the past two years, A. Schulman's Board of Directors has listened to shareholder concerns and taken a number of significant actions to address them. We have also made great strides in transforming our business, even in the face of difficult industry-wide market conditions. This is a time of great change and opportunity at A. Schulman. We recently announced that our long-serving CEO, Terry Haines, is retiring and that Joseph M. Gingo, an A. Schulman Board member, has been appointed as his replacement. Mr. Gingo most recently served as Executive Vice President, Quality Systems and Chief Technical Officer for The Goodyear Tire & Rubber Company, a $20 billion public company. The Company will benefit from his international operational experience and technical background, as well as his intimate knowledge of the workings of A. Schulman. Mr. Gingo operated four divisions during his career at Goodyear (three of which were global) with revenues of up to $1.2 billion, and was a key participant on a strategic turnaround team project which ultimately resulted in the divestiture of significant business lines for substantial value. He is the ideal candidate to lead A. Schulman, building on the progress we have made across our business and bringing fresh perspective that will allow this Company to continue to enhance shareholder value. In addition, the Company has already agreed to nominate Stanley W. Silverman, another experienced, independent director to join the Board, and to establish a special director committee, chaired by an independent director new to the board, to consider all strategic options available to the Company. Mr. Silverman will enhance both the independence and the expertise of the board through his significant previous operational experience as the President and CEO of a public company in the specialty chemicals industry. Further, the business plan we have put in place is beginning to pay dividends and we are well-positioned for the next phase of A. Schulman's growth. We are committed to delivering value for our shareholders and have shown openness to considering all options that will accomplish this. As you may be aware, Ramius Capital has nominated a competing slate of directors to stand for election at the 2008 annual meeting, seeking to replace two of our experienced board members, James Karman and the Company's new CEO, Mr. Gingo. Removing them from the Board would hinder the implementation of the Company's ongoing strategic initiatives that are beginning to show results. Ramius is taking this step despite the significant operational progress we have made to date and the meaningful actions we have taken to address shareholder concerns -- including Ramius'. Ramius fails to explain how adding its two director nominees will improve shareholder value. A. Schulman's Board already has fresh perspective in place and has and will continue to hold management accountable. Since 2005, the company has added four new directors independent of the Company, including James A. Mitarotonda, the Chairman, President and Chief Executive Officer of Barington Capital Group, L.P., one of our largest shareholders. The company has worked closely with Mr. Mitarotonda and Barington in good faith to comply with our past agreements and in the pursuit of additional measures in our efforts to be responsive to shareholder interests and to enhance shareholder value. Mr. Mitarotonda was a key member of a three-member special committee of our board which helped craft and implement our significant cost-cutting initiatives and restructuring plans in 2007. As our meeting on January 10, 2008 draws near, we wanted to provide you with the most up-to-date and accurate information regarding our long-term plans so that you can make an informed decision. THE BOARD BELIEVES IT HAS IMPLEMENTED THE RIGHT OPERATIONAL BUSINESS PLAN, COST STRUCTURE, STRATEGIC REVIEW PROCESS, MANAGEMENT TEAM AND BOARD COMPOSITION TO CREATE SIGNIFICANT ONGOING VALUE FOR SHAREHOLDERS. RAMIUS' NARROWLY FOCUSED ACTIONS WOULD ONLY DISTRACT FROM THIS PROCESS. COMMITTED TO TRANSFORMING OUR BUSINESS We believe we have implemented the right business plan to grow and enhance shareholder value. Our main objectives are to return North America to profitability, grow Europe profitably and maximize the successful launch of our key new product, Invision. -- In North America, we have successfully streamlined our business units to focus on three growth areas: polybatch; engineered compounds; and merchant, distribution and rotomolding. For the last quarter of 2007, excluding the investment costs for Invision and corporate spending, our North American business generated operating profit. -- In Europe, we are working on the integration of the Deltaplast Color Business and are continuing to grow our business in Asia. We will also continue to maintain vigilance on cost controls while growing in strategic markets worldwide. -- Inventory reduction initiatives helped drive cash flow from operations to $65 million in 2006, up from $19 million in 2005. -- We recently launched Invision, a new multi-layered sheet product that leverages A. Schulman's manufacturing base and technical abilities. It already shows strong promise of providing high-growth opportunities in many markets globally, and we believe that Invision will add significant value going forward as customer acceptance grows. With innovations like Invision and the successful streamlining of our North American business, we believe we are well on our way to making our growth goals a reality and delivering enhanced value for shareholders. REALIGNING OUR COST STRUCTURE TO DELIVER SHAREHOLDER VALUE Over the past year, we have implemented a number of cost-cutting initiatives and a restructuring plan aimed at promoting profitability in the Company's North American business segment and the Company's overall long-term success. We expect to save an annual $18 million through cost reductions affecting all lines of the A. Schulman P&L. Examples of these cost-cutting initiatives include selling, general and admin reductions, headcount and capacity. Since 2000 we have: -- Improved North American operations by eliminating 35% of manufacturing capacity and 33% of headcount. -- Closed 10 sales offices and consolidated order management in Akron. -- Consolidated all freight and warehousing with a single service provider. In addition, last year a special committee of the Board was formed that resulted in $8 million in cost savings. The committee was a well-balanced effort by the Board, comprised of one significant shareholder representative (James Mitarotonda), one new independent board member (David Birney) and one experienced board member (John Yasinsky). Going forward, management and the Board will work closely together to rigorously review and control expenses. LISTENING TO OUR SHAREHOLDERS AND TAKING ACTION TO ADDRESS THEIR CONCERNS A. Schulman's Board is diverse, experienced, highly qualified, and independent and we believe our shareholders benefit from this broad perspective. We have instituted several steps to improve corporate governance and address shareholder concerns: -- Added four outside independent directors to the Board since 2005. -- Nominating an additional independent director, Stanley W. Silverman, as recommended by our third largest shareholder, Barington, for election at this annual meeting, bringing the total number of outside directors to 11, of which 5 have either been directly recommended or approved by Barington. Mr. Silverman will bring valuable expertise to the board, as he has served as President and CEO of PQ Corporation, a public company which is a leading global producer of specialty chemicals and engineered glass materials. He also has served as a business advisor to private equity firms, performing due diligence on acquisition targets in the manufacturing and manufacturing services industries, and currently serves on the board of directors of C&D Technologies, Inc. (NYSE: CHP) and as executive in residence at the Krall Center for Corporate and Executive Education at the Lebow College of Business of Drexel University. -- Created a Lead Independent Director position. -- Terminated a "poison pill" in 2007 and adopted a policy consistent with ISS guidelines. -- Amended the corporate certificate of incorporation to remove supermajority voting for approval of business combinations. -- Linked management bonuses to key performance metrics of cash flow, return on invested capital and operating profit. -- Adopted new internal management standards and initiated a new internal audit function. -- Established a new special committee of the board, including Mr. Mitarotonda and two of the recently added independent directors, to consider all strategic options for the company, addressing Ramius' primary concerns as expressed in its shareholder proposal. It is important to note that Barington and Ramius were originally partners in advocating for change at A. Schulman. However, while our management and Board have been working cooperatively with Barington since 2005, Ramius ended its affiliation with Barington apparently in order to agitate and push its Board nominees instead of supporting our strategic plan, which addresses the same issues Ramius has raised. Barington has made valuable contributions to the Company and we look forward to continuing to work with them. We believe the Company's slate of directors will allow us to focus on the Company's future and what's best for all shareholders. A. SCHULMAN BOARD IS OFFERING THE BEST COURSE OF ACTION TO DELIVER VALUE FOR SHAREHOLDERS The Company's proposed slate is committed to a course of action that will deliver value for shareholders: -- Special committee formed to consider all strategic alternatives -- Share repurchase program approval increased to 5 million -- Positioned to turn around financial performance in North America -- Completing restructuring and cost-cutting initiatives -- Maximizing value of Invision A. SCHULMAN'S BOARD IS INDEPENDENT, ENGAGED AND HOLDING MANAGEMENT ACCOUNTABLE: -- If the A. Schulman slate is elected, 11 of 12 board seats will be held by independent outside directors. -- James Karman has extensive experience in the specialty chemical industry, including service as Vice-Chairman of RPM International, Inc., a manufacturer of coatings, sealants, and specialty chemicals with more than $3.4 billion in revenue. -- As CEO, Mr. Gingo will provide reinvigorated Company leadership. Mr. Gingo has excellent knowledge of all aspects of the polymer business, as well as the workings of A. Schulman, particularly the Invision technology, and will be instrumental in taking this Company to the next level. Mr. Gingo has operated four public company divisions (of which three were global) with revenues of up to $1.2 billion, and played a key role as part of a strategic turnaround team for a $20 billion public company which ultimately resulted in the divestiture of significant business lines. Ramius and its nominees are not offering a different strategy for the company -- they are simply distracting from our ongoing value-creating process. MAKE THE RIGHT CHOICE We strongly recommend that you vote FOR the A. Schulman nominees and AGAINST Proposal No. 3 by voting the WHITE proxy card by Internet, telephone or mail. We urge you not to sign any other proxy cards that may be sent to you by other shareholders. If you have previously returned another proxy card, you can automatically revoke it by signing, dating and returning the enclosed WHITE proxy card in the accompanying envelope. If you need assistance or have any questions, please call Georgeson, which is assisting A. Schulman with the proxy solicitation, at 877-668-1646. In closing this letter, I want to express our thanks to our employees for their hard work and diligence and thank you, our shareholders, for your loyalty and support as we continue to execute our long-term strategic plan.