The top shareholder of FTSE 250 chemicals maker Elementis has called for the business to be sold in a scathing letter calling out the firm’s management for “value destructive capital allocation” and “inability to improve operating performance”.
Franklin Mutual Series, an autonomous specialist investment manager within Franklin Templeton, holds 9.8% of shares in Elementis, which makes key ingredients in antiperspirants and paint, having first invested in 2020.
But Franklin Mutual said a number of poor decisions had prevented the shares from reaching their potential.
The firm noted that in 2017 and 2018, the business acquired fellow chemicals businesses SummitReheis and Mondo Minerals for a combined $860 million, yet its current market cap is only $650 million, after a 50% share price decline.
“This is a shocking amount of shareholder value destruction,” the letter said.
Franklin Mutual said the best option now was for the business to be sold to a larger chemicals firm.
“We believe that the company is not of a sufficient size to accomplish its targets,” it said. “We contend it would benefit from being part of a larger organization to achieve economies of scale.”
In its response, the board of Elementis said it “does not consider an immediate sale of the Company to be in the best interests of its shareholders”.
The letter sparked a surge in Elementis’ share price, which was up by as much as 11% to 127p, before dipping back to 122.4p.
But Franklin Mutual said the response was “inadaquete”, and suggested that other shareholders may feel the same.
“The board’s response to our letter is totally inadequate,” Steve Raineri, SVP and lead portfolio manager at Franklin Mutual Series, said. We are however encouraged by the initial outreach we have received this morning from other shareholders.”