Related: Plus ça Change, Plus C’est La MêMe Chose.
The following is a letter by Wynnefield Capital Management to fellow shareholders of OM Group (Ticker: OMG), released June 11, 2015:
Wynnefield Capital Management, LLC
450 7th Avenue, Suite 509
New York, NY 10123OMG’s Board Orchestrates a Decade of Disaster
Dear fellow shareholders,
Wynnefield Capital is an investment management firm focused on an equity small-cap value special situations strategy that practices constructive activism. The firm was founded by Nelson Obus and Joshua Landes in 1992. The principals and employees are the largest investors, representing about 20% of the Fund’s AUM. The investment manager holds core positions approximately 6-8 years.
We remain a shareholder of OM Group and intend to vote against the recently announced sale on principle.
On Monday, June 1, Wynnefield attended OM Group’s Annual Meeting of Stockholders in Cleveland, Ohio. That morning, we were stunned the existing Board of Directors agreed to sell the company out from under shareholders – especially given new Board members would be confirmed in just a few hours and that the company previously agreed (March 23) to activist FrontFour Capital Group, LLC demands, including Board seats and a renewed focus on operational improvements. To contrive an all-out sale during this transitional period is simply appalling. The Board made a mockery of corporate governance and effectively steamrolled shareholder rights. After rudimentary meeting procedure, management and the Board quickly exited the room – without a formal Q&A session (necessary given the sale agreement’s significance and ongoing poor financial performance) or ample time for shareholders to further discuss the aforementioned events.
Even more nefarious than the generous incentive via change-in-control provision, Mr. Joseph Scaminace, Chairman & CEO, exercised 174,995 shares on June 3 (two days after the sale announcement!), just 10 days prior to expiration. Many questions remain unanswered – about this transaction’s timing and price, as well as the Board’s and management’s creditability. It is egregious that executives and Board members agreed to pay too much for acquisitions – the most devastating purchase was VAC Holding GmbH in 2011, while selling our company substantially below full value.
For nearly a decade, OM Group’s management team’s greatest achievement was the massive destruction of shareholder capital. The complacent Board served as enablers by rubber stamping each whimsical M&A transaction with reckless abandon. The management team was grossly overpaid. Pay-for-performance tenets and basic business acumen were clearly absent in the halls of OM Group.
Given the horrid events described above, Wynnefield has the following requests:
1) The new Board must insure existing shareholders that a legitimate go-shop process takes place – including proof that the company’s sale was effectively marketed to other potential acquirers.
2) Wynnefield suggests institutional shareholders take notice of this Board’s horrible shareholder treatment and WITHHOLD votes for all Board members if their names appear on any future proxy.
As a reminder:
BOARD of DIRECTORS
- Joseph Scaminace – Chairman & CEO
- Richard Blackburn
- Steven Demetriou
- Patrick Mullin
- Dr. Hans-Georg Betz
- Carl Christenson
- John McFarland
- Katharine Plourde
NOMINATING and GOVERNANCE COMMITTEE
- Katharine Plourde – Chairperson
- Steven Demetriou
- Steven Demetriou – Chairperson
- Carl Christenson
- Patrick Mullin
COMPENSATION COMMITTEE
- Katharine Plourde – Chairperson
- Steven Demetriou
- Richard Blackburn
- John McFarland
EXECUTIVE OFFICERS
* Joseph Scaminace – Chairman & CEO (August 2005).
* David Knowles – President and COO (April 2013).
* Christopher Hix – VP and CFO (January 2012).
* Valerie Gentile Sachs – VP – General Counsel and Secretary (September 2005).
* Gregory Griffith – VP, Strategic Planning and Development (May 2012).
* Michael Johnson – SVP, Human Resources (November 2010).
OTHER COMPANY BOARD POSITIONS
* Joseph Scaminace: Cintas Corporation (NASDAQ: CTAS), Parker-Hannifin Corporation (NYSE: PH) and The Cleveland Clinic Foundation.
* Dr. Hans-Georg Betz: Executive Adviser of Advanced Energy Industries, Inc. (NASDAQ: AIES).
* Richard Blackburn: The George Washington University.
* Carl Christenson: Altra Industrial Motion Corporation (NASDAQ: AIMC).
* Steven Demetriou: Aleris International Inc., Kraton Polymers (NYSE:KRA).
* John McFarland: Weldon, Williams & Lick, Inc.
* Patrick Mullin: The Andersons, Inc. (NASDAQ: ANDE).
* Katharine Plourde: Pall Corporation (NYSE: PLL) and Albany International Corporation (NYSE: AIN).
Very truly yours,
Wynnefield Capital Management, LLC
By: /s/ Nelson Obus
Nelson Obus, Co-Managing Member
ABOUT WYNNEFIELD CAPITAL, INC.
Established in 1992, Wynnefield Capital, Inc. is a value investor specializing in U.S. small cap situations that have company- or industry-specific catalysts.
