Brenntag SE has rejected a call by activist investors for an overhaul of the supervisory board of the German chemical distributor, and told large shareholders it won’t address demands for a breakup until later this year.
(Bloomberg) — Brenntag SE has rejected a call by activist investors for an overhaul of the supervisory board of the German chemical distributor, and told large shareholders it won’t address demands for a breakup until later this year.
Chief Executive Officer Christian Kohlpaintner is under pressure to separate Brenntag’s specialty from its essential chemical operations. Activists including PrimeStone Capital say this will improve profitability and raise the stock price.
After meeting face-to-face last month, PrimeStone asked Kohlpaintner to move forward with a breakup “as quickly as possible,” improve Brenntag’s cost structure and add two of the London-based fund manager’s nominees to its supervisory board, according to a March 24 letter to the CEO seen by Bloomberg News.
In the letter, PrimeStone said it aims to reach a “mutually satisfactory solution” before notices are sent for the annual general meeting planned for June. “In absence of such an agreement, we intend to nominate two candidates to the supervisory board” and potentially propose other items, it said.
June Showdown
Brenntag reached out to more than 10 of its largest shareholders this week, according to people familiar with the matter. In an April 11 email to investors billed as a strategy and governance update, the company made it clear it wouldn’t be rushed into major changes — setting up a potential showdown in June.
In the email seen by Bloomberg, Brenntag said it won’t provide an update on a potential separation of the two businesses until a capital markets day in the fall. The company won’t consider expanding the supervisory board until its June 2024 annual shareholder meeting, 14 months away.
“It doesn’t serve the company’s best interest to significantly reshuffle the supervisory board before the aforementioned strategic considerations have been fully elucidated,” said the email signed by Thomas Altmann, head of investor relations at Essen-based Brenntag.
Neither letter has been previously reported.
Given the sharp disagreement on the pace of potential changes, the standoff threatens to mushroom into a proxy battle. CEO Kohlpaintner said recently that Brenntag is open in principle to separating the businesses at some point if it created shareholder value, but suggested he wants to develop both units further while they’re still under one roof.
In the email, Brenntag said it will hold the investor day in autumn to “provide further details on the incrementally independent and differentiated organizational setup of the two global divisions.”
Last month, the company moved forward on another activist demand, saying it would buy back up to 6.8% of its stock. Brenntag also dropped plans to bid for US rival Univar Solutions Inc. after PrimeStone and fellow activist Engine Capital criticized the pursuit.
Chairmwoman to Leave
In its email, Brenntag set aside an earlier plan to expand its supervisory board by one, to seven members, as Chairwoman Doreen Nowotne’s term ends.
Nowotne was broadly expected to remain a member of the board, a move activists have also criticized while pushing for representation.
Brenntag said Nowotne will instead leave the company and be replaced by an “internationally experienced female candidate.”
A representative for PrimeStone Capital, which has a more than 2% stake in Brenntag, said the fund will publish a response in coming days, declining to comment further.
While PrimeStone characterized a March 13 meeting with Kohlpaintner as “constructive,” in the letter it cited continued resistance to the idea of separating the specialty division and “setting it free, finally able to compete on equal terms with its better-performing peers.”
The investors said main reasons given for the specialty unit’s underperformance “are not valid,” and said the company’s Horizon 2 initiative won’t adress lower growth and a “commodity image.”
A spokeswoman for Brenntag declined to comment.
Brenntag shares have risen 16% this year, roughly in line with the German DAX Index’s 13% rise. The stock was little changed at €69.40 in afternoon trading, giving it a market value of €10.7 billion ($11.8 billion).
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