After coming under attack from a hedge fund which says it plans to launch a proxy fight, LSB Industries Inc. is firing back against claims that the company lacks proper oversight and that its stock is undervalued because of mismanagement and other internal problems.
Jack Golsen, LSB's chairman and CEO, said in a letter to shareholders that the company's board rejected most of New York-based hedge fund Engine Capital's demands that the company spin off its climate control business and make governance reforms.
LSB's board has decided that the hedge fund's ideas about boosting profitability would not work, the letter said.
“The proposals from Engine Capital are not new or novel,” LSB said in its letter to shareholders. “The proposals are all actions that your board has previously considered and evaluated, and determined not to be in the best interest of shareholders.”
Golsen also said in the letter that the methods Engine Capital used to state that the company is significantly undervalued were “misleading.”
Engine Capital said in an open letter to LSB's board in December that the company could be worth as much as $1.5 billion — nearly twice its current estimated enterprise value of about $850 million. LSB operates a chemical business and a climate control unit.
Golsen said in his letter that Engine Capital has used metrics to value the company at $1.5 billion that do not take into account significant production and geographic differences between LSB and other companies.
“In its letter, Engine Capital uses a valuation methodology that demonstrates a lack of understanding of our business and industry,” Golsen said in the letter.
Attempts to reach Arnaud Ajdler, managing partner of Engine Capital, were unsuccessful Tuesday. Ajdler founded the hedge fund in February 2013.
Engine Capital had said it plans to nominate its own slate of directors to the company's board if LSB does not make significant reforms.
Engine Capital has not disclosed how much of LSB's stock it owns.
Four of LSB's six nonindependent directors stepped down last week, reducing the size of LSB's board from 14 to 10 directors. The move also increased the percentage of independent directors on the board after Engine Capital voiced criticisms about the number of insiders on LSB's board. Eight of LSB's 10 directors are classified by the New York Stock Exchange as independent.
Three of LSB's board seats are up for re-election at the company's next annual meeting.