Barington Capital Group, L.P. Sends Letter to the Board of Directors of Ameron International Corporation
NEW YORK, Nov. 9, 2010 /PRNewswire/ -- Barington Capital Group, L.P. sent a letter today to the Board of Directors of Ameron International Corporation (NYSE: AMN). In the letter, Barington states that while it is pleased that the Company followed Barington's recommendation and sold its ownership interest in TAMCO and will be returning excess cash to stockholders, there is still much more work that needs to be done. Barington urges the directors of Ameron to ensure that the Company's management team carefully considers the other recommendations set forth in Barington's March 31st letter to James Marlen, the Chairman, President and Chief Executive Officer of Ameron. Barington is particularly concerned because action only seems to be taken by Mr. Marlen in response to stockholder pressure.
Barington is also critical of the executive compensation, corporate governance and employment practices of the Board that are detailed in the letter.
The foregoing summary of the Barington letter is qualified in its entirety by reference to the full text of the letter, a copy of which is attached to this press release.
About Barington Capital Group:
Barington Capital Group, L.P. is an investment firm that, through its affiliates, primarily invests in undervalued, small and mid-capitalization companies. Barington and its principals are experienced value-added investors who have taken active roles assisting companies in creating or improving shareholder value. Barington represents a group of investors that currently owns over 3.8% of the outstanding shares of common stock of the Company.
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Barington Capital Group, L.P.
888 Seventh Avenue
New York, New York 10019
November 9, 2010
The Board of Directors
Ameron International Corporation
245 South Los Robles Avenue
Pasadena, CA 91101
We are pleased that Ameron International Corporation ("Ameron" or the "Company") followed our recommendation and sold its ownership interest in TAMCO and will be returning excess cash to stockholders through a $50 million stock repurchase program and a $3.00 per share special dividend. While we believe that it would be more beneficial if the Company returned cash to stockholders through a tender offer instead of through periodic stock repurchases and a special dividend,(1) it is our belief that the actions taken are still helpful first steps toward improving shareholder value at Ameron.
We believe that there is still much more work to be done, however, and are concerned because action only seems to be taken by James Marlen, the Chairman, President and Chief Executive Officer of Ameron, in response to stockholder pressure. We therefore hope that as directors of Ameron, you will ensure that the Company's management team carefully considers our other recommendations set forth in our March 31, 2010 letter to Mr. Marlen. Particular emphasis should be placed on our suggestions regarding cost containment, selling Ameron's Hawaii Infrastructure business (which we believe is non-core and would be worth substantially more to a strategic buyer), and strategically focusing on Ameron's core Water Transmission and Fiberglass-Composite businesses. We believe that the Company should be aggressively pursuing opportunities to grow these two core businesses, including by acquisition. Among other things, we believe that the Company should expand the Water Transmission Group, which is concentrated in the Southwest, into new regional markets, and explore growth opportunities overseas for the Fiberglass-Composite Pipe Group, including in the Middle East and Asia.
With respect to the other areas addressed in our letter that are the responsibility of the Board, including executive compensation and corporate governance, it is our belief that your record as directors leaves much to be desired.
For example, the Board has a long history of paying what we believe to be unjustifiably high executive compensation to Mr. Marlen. Since 2004, the Board has paid Mr. Marlen over $45.3 million in total compensation. According to the Company's latest proxy statement, the Board's Compensation Committee has been utilizing a group of 11 publicly-traded companies for comparability purposes when establishing executive compensation.(2) However, over the same time period, the average cumulative compensation paid to the CEOs of this peer group was only $26.3 million, meaning that the Board has paid Mr. Marlen approximately $19 million, or approximately 72%, more in total compensation than was paid on average to the CEOs in the peer group. Of equal concern to us is the fact that Ameron is so much smaller in terms of enterprise value than the companies in the "peer group" selected by the Compensation Committee. As of the close of business yesterday, the average enterprise value of the peer group was approximately $4.32 billion. Ameron's enterprise value, however, is only $560 million, which is smaller than all but two of the 11 companies in the peer group and approximately 13% of the group's average enterprise value. As a result, over this time period the Board has not only been using a group of companies much larger than Ameron to establish its compensation benchmarks, but has also been compensating Mr. Marlen in absolute terms significantly more than the average cumulative compensation paid to the CEOs in this group of much larger companies.
In the area of corporate governance, we have noticed that you recently amended the Bylaws of Ameron to require that the Chairman of the Board be an independent director in accordance with our recommendation. Unfortunately, like a number of other actions the Board has taken recently in the area of corporate governance, it appears to us to be, in many respects, more show than substance.
As stockholders, we support bylaw provisions that require public companies to appoint an independent Chairman. A board of directors is responsible for selecting and replacing the CEO, setting executive pay and monitoring and evaluating the CEO's performance. In our view, it is difficult for a board to fulfill these basic duties in the best interests of stockholders if it is being led by the same person that the board is responsible for overseeing.
We believe that there is clearly an immediate need for an independent Chairman at Ameron, as while Mr. Marlen has been CEO, significant concerns have been raised by independent proxy advisory firms regarding the compensation practices of the Company and the alignment of executive and stockholder interests.(3) Unfortunately, the Bylaw provision you implemented will not require the Company to appoint an independent Chairman until 2012, after Mr. Marlen is no longer employed by the Company. As a result, it appears that this Bylaw amendment will provide little substantive benefit to the Company and its stockholders in the near term.
It appears that this is also the case with the Board's new policy regarding minimum stock ownership for executive officers. In light of the historically low ownership of Ameron stock by Mr. Marlen, we were initially pleased to see that you followed our recommendation and implemented a requirement that the CEO own common stock equal in value to three times his base salary. Unfortunately, the policy you implemented provides Mr. Marlen, who is slated to retire in 2012, with five years to satisfy this requirement. It is unclear to us why Mr. Marlen should be given so long to comply with this new policy, as since Mr. Marlen became CEO in 1993, he has earned over $84 million in total compensation and has been awarded almost $32 million in equity stock grants and awards. It is also unclear to us why despite the generous compensation that has been paid to Mr. Marlen, there is no requirement for him to invest in the Company at market prices. From what we can tell from public filings, Mr. Marlen only owns shares of Ameron that were awarded to him by the Board and has failed to purchase even one share of stock in the Company that he runs in the open market.
Finally, we were deeply disturbed by the Company's announcement this past March that the Board had amended Mr. Marlen's employment agreement with the Company to, among other things (a) extend the term of the agreement until March 31, 2012, (b) increase his base salary to $963,000 per year and (c) provide that he will continue to serve as Executive Chairman after the Company appoints a new Chief Executive Officer until the expiration of his employment agreement in 2012. We agree that the Company should initiate a search for a new CEO and strongly encourage the Board to begin that process as promptly as possible, as opposed to "in early 2011" as was announced in the Company's March 22nd press release. We believe, however, that it is a mistake to leave Mr. Marlen on the Board as Executive Chairman once a new CEO is named. It is our belief that doing so could undermine the new chief executive's ability to lead the Company and pursue his own strategic direction, create confusion within the Company as to who is ultimately in charge, and hinder the ability of the Company to recruit top candidates for the job.(4) It is therefore our strong recommendation that the Board appoint an independent Chairman to run the Board once a new CEO is named. As a former CEO, Mr. Marlen would not be independent. In our view, the Company and its stockholders would be served best if Mr. Marlen resigned from the Board, but remained available to provide advice to the new CEO on a consulting basis.
We continue to remain convinced that Ameron has a vast value potential that has not been realized and that its stock could appreciate considerably in value if the Company fully implements the operational, strategic and governance recommendations outlined in our March 2010 letter. Unfortunately, stockholders have yet to hear how Mr. Marlen intends to address these matters, as he and his management team do not hold earnings conference calls and have failed to host an investor conference to present to stockholders their plan to improve shareholder value at Ameron. It is astonishing to us that you have permitted Mr. Marlen to limit the information provided to stockholders and their ability to ask questions of management for so long.
As the examples listed above illustrate, the Board has been extremely responsive to the needs of Mr. Marlen and has implemented a wide variety of policies and employment arrangements for his benefit. However, as directors of a publicly-traded company, the Board has a fiduciary duty to see that the Company is run in the best interests of its stockholders, not in the best interests of its CEO. We therefore call upon you to ensure that meaningful initiatives are implemented now for the benefit of the stockholders to address the issues outlined in our letter, not some time in the future after Mr. Marlen finally retires from office.
/s/ James A. Mitarotonda
James A. Mitarotonda
(1) In our opinion, stockholders would benefit more if the Company promptly commenced a tender offer to repurchase one million shares of common stock. A tender offer of this size would materially decrease the number of shares outstanding in short order, which should, in turn, increase the Company's stock price. The special dividend will not decrease the number of shares outstanding and we are concerned that it could take the Company years to repurchase $50 million in stock under its stock repurchase program.
(2) The companies selected by the Compensation Committee for purposes of setting executive compensation consist of Dresser-Rand Group, Inc., Gibraltar Industries, Inc., Lufkin Industries Inc., Martin Marietta Materials, Inc., National Oilwell Varco, Inc., Northwest Pipe Company, Schnitzer Steel Industries, Inc., Texas Industries Inc., Trinity Industries, Inc., Valmont Industries, Inc. and Vulcan Materials Company.
(3) RiskMetrics Group stated in its March 15, 2010 proxy report that there is a "pay-for-performance disconnect at the company" and Ameron was given a "D" grade in the area of pay-for-performance from Glass Lewis & Co. in its 2010 proxy report. Similarly, The Corporate Library, in its March 2, 2010 profile of the Company, gave the Company a "Very High Concern" rating with respect to its compensation practices and stated that there are a number of concerns at Ameron that call into question the alignment of executive interests with stockholder interests.
(4) See, The Conference Board's September 2010 report entitled "Retaining Former CEOs on the Board," which noted that "[i]t is unlikely that appointing the former CEO as chairman will ensure the level of independence that yields corporate governance benefits; to the contrary, the situation may result in an ambiguous chain of command." The report also stated that "[t]he continued involvement of the retired CEO also poses the concrete risk of undermining the new leadership since the new CEO could be constrained by an overzealous predecessor."
SOURCE Barington Capital Group, L.P.