Engine Capital LP, a shareholder of LSB Industries, Inc. (LXU), issued an open letter it sent to the company's board, critical of the company's corporate governance, corporate structure, communication with shareholders and repeated operational failures. Engine Capital expressed its belief that the firm's inherent value far exceeds its current stock price, and that such unrealized value could be unlocked through improvement in the composition of the board, a sale or spin-off of the company's climate control business, and conversion of a portion of the company's chemical assets into a publicly-traded master limited partnership.
In its letter, addressing the board members, Engine Capital LP said: "We invested in LSB because we think that the Company is significantly undervalued and there are opportunities within the control of management and the Board to increase shareholder value substantially. In particular, we think that the Board would be significantly strengthened by adding a number of new members with relevant backgrounds in chemical asset operations, climate control, and corporate finance, and with no ties to the Golsen family. We also urge the Company to establish a special committee of truly independent directors to analyze the Company's strategic alternatives to maximize value, including separating the climate control business from the chemical assets and converting certain of the chemical assets into an MLP structure."
At the current price, the enterprise value of LXU is nearly $850 million, considering the insurance claims that were paid after September 30, 2013. "In our opinion, the best way to value the company is through a "sum of the parts," given the very different financial characteristics of the climate control business and the chemical assets," the company added. "We therefore think that LSB's total inherent value is at least $1.5 billion, implying a stock price between $65 and $75 per share, compared to LXU's stock price of around $39 per share as of the time of this writing."
by RTT Staff Writer
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