A shareholder is trying to pressure Berry Global Group Inc. into looking at alternatives to boost the value of the company, including the idea of selling.
Ancora Holdings Group LLC of Cleveland is calling for "real action to address the impediments to value creation that have compounded at Berry," in a Nov. 29 letter to the company.
While the investment firm believes Berry has a high-quality portfolio of products and a "capable management team that deserves credit," Ancora also labeled the company a chronic underperformer when it comes to stock value.
"It is now necessary to initiate a comprehensive review of strategic alternatives, including a full sale or go-private transaction," Ancora states.
Berry could not be immediately reached following the release of the Ancora letter, but CEO Tom Salmon talked about the company's use of free cash flow during a recent interview with Plastics News.
"We built a capital allocation strategy that by design is meant to be flexible and return based. As such, capital investment and growth continues to be a priority for us," Salmon said.
While Ancora criticized the amount of money Berry has signaled it can spend on buying back shares of stock, Salmon previously stressed the desire to be flexible in the use of free cash flow.
Maintaining a debt ratio of 3.0 to 3.9 times earnings before interest, taxes, depreciation and amortization is a priority for the company. Berry, which lowered debt by $1 billion during the last fiscal year, moved within that range to 3.8 times EBITDA at the end of fiscal 2021 in late September.
Berry expects about $800 million in capital spending during the current fiscal year — that's typically money used to maintain, upgrade and expand existing operations. This is a 37 percent increase over the last fiscal year.
There are different ways a company can spend money to increase shareholder value, including capital expenditures, stock buybacks and dividends. Berry currently does not offer a dividend to shareholders, but Salmon did not rule that possibility out in the future.
"Clearly, Berry is very fortunate to be an industry leader in terms of cash flow from operations with between $1.7 [billion] and $1.8 billion generated each year. So it's going to give us the wherewithal to have a very balanced capital allocation strategy over time," Salmon said.
"But right now clearly we're happy with the growth investment," he said.
Berry's board previously has authorized a repurchase of up to $400 million in company stock, and the company on Nov. 24 revealed a plan to buy back $50 million during the first fiscal year 2022 quarter.
"The share repurchases reflect the company's ongoing desire to provide current liquidity and create long-term value for its shareholders, while continuing to execute its flexible capital allocation strategy, including funding organic growth projects, opportunistic share repurchases, debt paydown and strategic acquisitions," the company said when announcing the repurchase plans.
Ancora, however, was unimpressed.
"We deem Wednesday afternoon's announcement of $50 million in planned share repurchases to be an insult to investors. Not only is the size of the accelerated share repurchase transaction wholly insufficient, but the board did not even increase its existing authorization," the firm said.
About $350 million will remain in the company's share repurchase authorization following the completion of the $50 million buyback.
Company boards typically authorize in advance a specific value of stock management can buy back to allow for flexibility in making opportunistic purchases. The thinking behind buying stock back is that the overall value of a firm is spread out over a smaller number of shares. The goal is that investors will consider those remaining shares to then be more valuable.
"These repurchases are a great opportunity to return capital to shareholders consistent with our capital allocation strategy," Salmon said in a statement when the stock repurchase was announced.
Salmon, during the interview, said the company eventually will look to return value through stock repurchase, dividends, capital expenditures and paying down debt.
"The bottom line is we are going to be able to do all at some point," he said. "But I will tell you there's no greater way to stand behind the strength and value of our company than investing in organic growth."
Ancora, "first and foremost," would like to see more money spent on share repurchase and is calling for the buyback authorization to increase to $1 billion or more.
Ancora also wants the company to sell and then lease back real estate, a move that would unlock up to $2 billion from its balance sheet, the investment firm estimates.
"We believe the board owes it to long-suffering shareholders to evaluate a sale of the company or a go-private transaction. Ancora, in particular, views this step as an absolute necessity given the public market's unwillingness to properly value Berry," the firm said.
Ancora, which also has offices in Detroit and Naples, Fla., believes Berry could receive $100 or more per share if the company was sold. Berry's stock was trading at $71.84 at one point during mid-day trading Nov. 29, up $5.37 per share, or 8.2 percent, following the release of the letter.
The investment firm also said it would seek to have new independent directors voted on to Berry's board if necessary.
Berry has more than 400 institutional investors and 130.14 million shares as of Sept. 30, according to information on Nasdaq's website.
The largest investor is Edgepoint Investment Group Inc. with 17.46 million shares as of that date, followed by Vanguard Group Inc. at 12.4 million shares. Turtle Creek Asset Management Inc. was third at 5.85 million shares, according to the Nasdaq list. Ancora, in its Nov. 29 letter, said it holds about 1 percent of the company's shares, which would be about 1.3 million shares.