Barington Capital Group Sends Letter to the Chairman and CEO of Ameron International Corporation Suggests Measures to Improve Shareholder Value
NEW YORK, March 30 /PRNewswire/ -- Barington Capital Group, L.P. sent a letter last night to James S. Marlen, the Chairman, President and Chief Executive Officer of Ameron International Corporation (NYSE: AMN). In the letter, Barington states that it believes the Company's common stock is significantly undervalued given Ameron's long list of positive attributes, and presents a variety of measures which it believes will help the Company unlock its value potential.
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 in assisting companies in creating or improving shareholder value. Barington represents a group of investors that currently owns approximately 3.7% of the outstanding shares of the Company.
Barington Capital Group, L.P.
888 Seventh Avenue, 17th Floor
New York, New York 10019
March 29, 2010
Mr. James S. Marlen
Chairman, President and Chief Executive Officer
Ameron International Corporation
245 South Los Robles Avenue
Pasadena, CA 91101
Barington Capital Group, L.P. represents a group of investors that currently owns approximately 3.7% of the outstanding common stock of Ameron International Corporation ("Ameron" or the "Company").
We are convinced that the Company has a vast value potential that is not being realized. While Ameron may have outperformed its Peer Group(1) and the market as a whole over the past five and ten-year periods, the Company has underperformed these benchmarks over the past 6, 12, 18, 24 and 30-month periods as illustrated in the table below, and its stock is down over 50% from its all time high of $135.02 per share, closing Friday at $64.38 per share.
6 Months 12 Months 18 Months 24 Months 30 Months (9/26/09 - (3/26/09 - (9/26/08 - (3/26/08 - (9/26/07 - 3/26/10) 3/26/10) 3/26/10) 3/26/10) 3/26/10) -------- -------- -------- -------- -------- Ameron International -9% +28% -15% -29% -36% Peer Group -1% +53% -21% -12% -24% Russell 2000 Index(2) +11% +58% -4% -2% -16% S&P SmallCap 600 Index(2) +12% +60% -3% -1% -15 %
It is our belief that the Company's stock is significantly undervalued given Ameron's long list of positive attributes, which include leading market positions, attractive end markets, valuable joint ventures and a healthy, asset-rich balance sheet. In order to unlock Ameron's value potential, however, we believe that the Company must address areas where, in our view, the Company is in need of improvement. These areas include portfolio management, cost containment, executive compensation, the alignment of interests between management and stockholders, cash management, corporate governance and corporate communications. We would therefore like to discuss with you a variety of measures that we believe will help address these issues and improve shareholder value for the benefit of all Ameron stockholders.
While Ameron has assembled an impressive array of businesses, we believe that the Company should rationalize its portfolio in order to better focus on its core Fiberglass-Composite and Water Transmission businesses. It is our belief that Ameron has two glaring non-core businesses: TAMCO (Ameron's 50%-owned steel mini-mill joint venture) and the Company's Hawaii Infrastructure Division (which manufactures and markets crushed basalt aggregates, ready-mix concrete, concrete pipe, box culverts and utility manholes). While both of these businesses have strong market positions, we believe that they are outside of the scope of Ameron's core competencies and would be worth substantially more to a strategic buyer. We therefore recommend that the Company promptly conduct a thorough review of all strategic alternatives for TAMCO and the Hawaii Infrastructure Division.
We believe that Ameron should be managing costs more aggressively in this difficult economic environment. While we acknowledge the cost containment efforts you and your team have made over the last two years, we believe that expenses need to be further reduced. We note, for example, that during the last twelve month period:
- Selling, general and administrative (SG&A) expenses relative to sales at Ameron are approximately 18% versus approximately 11% for the Peer Group.
- Corporate expenses relative to sales at Ameron are approximately 6% versus approximately 2% for the Peer Group.
- Corporate expenses relative to sales at Ameron are approximately 6% versus approximately 3% for other like-sized industrial conglomerates.(3)
We believe that the Company's operating units can do more to contain costs, and recommend that the Company employ strict return on capital guidelines on future expenditures to ensure effective expense and capital controls.
We also believe that the Company needs to significantly reduce its expenditures in the area of executive compensation. Given the size of Ameron, the payments to the Company's executive team, and in particular, to you as its chief executive officer, appear to us to be excessive. We highlight the following facts:
- Over the past six years alone, Ameron has paid its top five executives over $77 million in total compensation.
- As CEO of Ameron, you were paid over $39 million in cumulative compensation from 2004 through 2008. In contrast, the average cumulative compensation paid to the CEOs of the Peer Group over the same time period was less than $22 million.(4)
- The cumulative compensation paid to you as CEO of Ameron from 2004 through 2008 is approximately 9% of the Company's current enterprise value. In contrast, the average cumulative compensation paid to the chief executives of the Peer Group over the same period is approximately 1% of the Peer Group's average enterprise value.(4)
- Ameron's enterprise value is approximately 12% of the average enterprise value of the Peer Group of companies that the Company's Compensation Committee utilized for purposes of establishing executive compensation for fiscal 2009.
Not only is the Board's Compensation Committee using a "peer group" of companies much larger than Ameron to establish its compensation benchmarks, it is also compensating you as CEO in absolute terms significantly more than the average compensation paid to the chief executives in this group of larger companies. It is therefore not surprising to us that the Company received a "D" grade in the area of pay-for-performance from Glass Lewis & Co. in its 2010 proxy report and that RiskMetrics Group stated in its March 15, 2010 proxy report that there is a "pay-for-performance disconnect at the company." RiskMetrics notes that it has repeatedly highlighted "concerns with respect to the Company's benchmarking practices," in particular the fact that "Ameron's selected peer group has a median revenue that is more than three times the revenue of Ameron." We therefore strongly recommend that Ameron's Compensation Committee reduce the pay of its executive officers to bring it in line with compensation paid at similarly sized companies.
Alignment of Interests between Management and Stockholders
Over the past six years, Ameron's Board of Directors has awarded its executive management team approximately $16.4 million in annual stock grants and awards. Nevertheless, according to the Company's most recent proxy statement, Ameron's executive officers beneficially owned less than 65,000 shares of common stock of the Company as of February 10, 2010, or less than $4.4 million worth of securities. The discrepancy between these two numbers is primarily explained by the fact that when Ameron's executive officers are granted equity as part of their compensation package they quickly sell any shares they have been awarded once they vest (despite the fact that a significant portion of their long-term compensation is already paid in cash pursuant to the Company's Key Executive Long-Term Cash Incentive Plan). We note, for example, that the Company's executive management team has sold over $9 million worth of stock in the last 24 months alone. Similarly, although you were awarded approximately $11.5 million in equity stock grants and awards between 2004 and 2009, you currently beneficially own only 14,213 shares. We find management's low level of stock ownership to be unacceptable and indicative of a lack of commitment to the enterprise they run on behalf of stockholders.
These issues, along with the fact that two leading proxy advisory firms have stated that there is a pay-for-performance disconnect at the Company, are of concern to us as they call into question whether management's interests are properly aligned with the interests of stockholders. The Corporate Library, an independent provider of corporate governance and compensation information and analysis, raised these issues in its March 2, 2010 profile of the Company, giving the Company a "Very High Concern" rating with respect to its compensation practices. The Corporate Library concluded in its report that "[o]verall, the company's compensation programs and the Compensation Committee's discretionary authority and the lack of company stock ownership requirements raises concerns over the alignment of executive interests with shareholder interests."
We note that the Company does not have a minimum stock ownership policy for its directors or executive officers, nor has it disclosed a mandatory holding period for stock acquired from restricted stock and other grants after vesting. To help better align the interests of stockholders and management, it is our belief that the Company should promptly enact these policies in accordance with "best practice" standards established by a leading compensation and governance authority.
We believe that the Company should consider alternative uses for its large cash balances. According to the Company's latest Form 10-K filing, as of November 30, 2009, Ameron held over $181 million in cash and cash equivalents. We believe that Ameron should return excess cash to stockholders, after determining how much cash is needed to maintain an adequate cushion throughout its business cycle and setting aside capital for potential acquisitions to enhance the Company's core Fiberglass-Composite and Water Transmission businesses. It is our recommendation that the Company implement an aggressive share buyback program to take advantage of the current trading range of its common stock, and believe that Ameron should be able to reasonably commit at least $50 million to this endeavor. Such a program should also benefit the Company by enhancing its Return on Equity and Return on Assets, both of which are below average when compared to the Peer Group.
It is our belief that the Company needs to improve its corporate governance in a number of areas, including by declassifying the Company's Board of Directors, employing a majority voting standard for director elections and separating the Chairman and CEO positions. We note that The Corporate Library has given the Company a "D" rating based upon Ameron's current governance profile and that a stockholder has put forth a proposal on Ameron's proxy statement for its 2010 annual meeting that would require the Chairman of the Board to be an independent director. We join RiskMetrics and Glass Lewis in supporting this proposal, and encourage the Ameron Board to promptly appoint an independent Chairman.
While we support the recent decision of the Company to establish a succession plan for the CEO position, we do not believe that it is appropriate for the Company to wait until your successor has been appointed in 2011 to separate the Chairman and CEO positions and appoint an independent Chairman. Furthermore, once a new CEO has been appointed and joins the Board, we do not believe that an outgoing CEO should continue to serve as Executive Chairman, Non-Executive Chairman or even as a director of the Company. As Chairman, you would not be independent, and by retaining an executive position with the Company or a position on the Board, it could limit the ability of your successor to effectively lead the Company and raise confusion among employees as to who is ultimately in charge.
We believe that it is important for a public company to have a robust corporate communications program. It is our belief that the consistent, proactive and accurate articulation of a company's key investment attributes helps it forge a stronger relationship with the investment community. This, in turn, can enhance a company's valuation and improve the liquidity of its stock.
It is our view that the Company's communication with the investment community has been inadequate. We note, for example, that Ameron does not conduct quarterly or annual earnings conference calls – a standard practice for almost all exchange listed companies – and that the Company's management team rarely (if ever) participates in investor conferences or road shows. We strongly recommend that that the Company address this issue by beginning to hold investor conference calls and taking other steps to augment its communication and interaction with the investment community.
In conclusion, it is our strong belief that addressing the issues outlined above will help improve shareholder value at the Company for the benefit of all Ameron stockholders. As significant stockholders in the Company, we are confident in the prospects of the Company and are committed to helping Ameron achieve its value potential. We are therefore available at your convenience to review our suggestions with you in greater detail and answer any questions you may have.
We appreciate the time you and your team have spent with us over the last few months. We also appreciate that the Nomination Committee was willing to interview our suggested candidates for the Board of Directors of the Company. While we are disappointed that none of our proposed candidates were invited to join the Board, given our relationship with you, we have chosen to forgo running a competing slate of directors at this year's annual meeting in the hope that we can work with you in our capacity as a significant stockholder to improve the Company's profitability and share price performance. As you know, Barington has a long track record of successfully working with management teams and boards of public companies to develop plans to improve shareholder value. You have seen this first-hand, as we have worked together as directors of A. Schulman, Inc., a company that has become a leader in its field and whose stock recently hit an all time high.
We look forward to hearing from you.
/s/ James A. Mitarotonda
James A. Mitarotonda
(1)The Peer Group, as identified by Ameron in its most recent Form 10-K filing, is comprised of Dresser-Rand Group, Inc., Gibraltar Industries, Inc., Lufkin Industries Inc., Martin Marietta Materials, Inc., National Oilwell Varco, Inc., Northwest Pipe Co., Schnitzer Steel Industries, Inc., Texas Industries Inc., Trinity Industries, Inc., Valmont Industries, Inc. and Vulcan Materials Co.
(2)Source: Capital IQ
(3) The Middleby Corportion, Kadant Inc., Gerber Scientific, Inc., Kennametal Inc., Nordson Corporation, Lincoln Electric Holdings, Inc., Gardner Denver, Inc., Briggs & Stratton Corporation, Tennant Company, Hardinge Inc. and PMFG, Inc.
(4)2009 compensation data excluded, as it is not available for all members of the Peer Group.
SOURCE Barington Capital Group, L.P.