Investor and Venator in war of words

Czech Republic-based J&T MS 1 SICAV has sent a public letter to the board of TiO₂ producer Venator Materials highly critical of the firm’s strategic direction and demanding additional independent shareholder representation. J&T is the second largest shareholder in Venator, with a stake of 14.3%.

Since an IPO in August 2017, the letter states, Venator’s share price has fallen by about 96% from a peak of $25.50 to less than $1. In November 2022, the company was warned that it faces a potential delisting from the New York Stock Exchange.

“Despite this drastic decline, we believe the company has failed to articulate a go-forward strategy to restore confidence among investors and, consequently, the stock has continued to languish,” J&T said. “Frankly, in our view, Venator is by far the worst financially performing TiO2 producer – and one of the worst in the entire chemical sector.”

J&T added that it is not an ‘activist’ shareholder and does not generally do not go public with such concerns. “However, after trying to reach a resolution privately for seven months and being met with apparent delay tactics and gamesmanship, we believe we have no other recourse.”

In May 2022, J&T said, it reached out to the company proposing its portfolio manager Martin Seycek as a board observer, then, when this refused as a member. However, Venator had been obstructive in its attitude and the ostensibly independent directors it subsequently appointed were not truly independent of the main shareholder, SK Capital, which acquired a 40% stake from Huntsman in December 2020.

In addition, and unlike its peers Tronox and Chemours, Venator does not have any directors from outside the chemical industry, the letter continued. For this reason, J&T concluded, “shareholder-driven change is desperately needed to bring fresh perspectives and credibility to the board”.

In response, Venator said: “We maintain a regular and open dialogue with our shareholders and welcome their input.” Management had been seeking to hold discussions with J&T for several months and recently scheduled a meeting with them. “Beyond its demand for board seats, J&T has yet to offer any concrete thesis or recommendations.”

The company added that it is “navigating unprecedented headwinds of macroeconomic uncertainty, low consumer confidence, weak demand, record high energy prices and other inflationary costs”. In response, it has taken such actions as implementing a $50 million cost reduction programme, closing a $51 million sale-leaseback transaction for a site in its Color Pigments business and sold the iron oxide business for an enterprise value of $140 million.

Subsequently, in a Q4 business update, Venator announced that it appointed both Moelis & Company and Kirkland & Ellis, in addition to business and operational advisor Alvarez & Marsal “to assist with strategic review and engagement with stakeholders”. It also named two new independent directors to replace two outgoing directors.

Stefan M. Selig will be chairman, Barry Siadat of SK having stepped down, and will join the audit committee. Selig is the founder of BridgePark Advisors and a board member at both Safehold and Simon Property Group, was also formerly Undersecretary of Commerce for International Trade for the US Department of Commerce from 2014 to 2016.

Meanwhile Jame Donath joined following the resignation of Miguel Kohlmann and will be on the compensation committee. He has had a 20-year plus career in private equity and was formerly managing partner of Magnolia Road Capital.

Venator said that it expects Q4 TiO2 sales volumes to be around 28% lower than Q3 and 44% lower than Q4 2021, leading to a negative projected EBITDA of $57-62 million. This was blamed on challenging macro-economic conditions, including low consumer confidence, weak demand, record high energy prices and other inflationary costs.

“These factors are particularly acute in Europe, where the majority of our business is located,” stated Simon Turner, president and CEO. “We have been working hard to address these headwinds and have already taken proactive steps to ensure we are managing all factors that are within our control by continuing to improve the overall operations of the business