Oklahoma City-based LSB Industries Inc. could be gearing up for a proxy fight with a small but determined New York hedge fund that has called for changes at the chemical manufacturer and climate control company.
Engine Capital has said it plans to nominate five new directors for the company's board by Jan. 23 if LSB does not take steps toward reform.
In an open letter published Dec. 30, Engine Capital called for LSB to split its climate control and chemical businesses and add new members to the company's board.
LSB Chief Financial Officer Tony Shelby said the board has engaged advisers to decide its response to Engine Capital.
Shelby said it was “unusual” that Engine has not yet disclosed how much of LSB's stock it owns.
“They are fairly small,” Shelby said.
It could be an uphill battle for Engine to force changes at LSB, unless it gains support from other LSB shareholders.
LSB's current management controls about 19 percent of LSB's stock, mostly held by LSB founder, Chairman and CEO Jack Golsen, 84, and son Barry Golsen, 62, LSB's president and chief operating officer.
Among Engine's criticisms is that six of LSB's 14 board members are related to the Golsens or company insiders.
Most companies have only one nonindependent member on their board of directors, Engine said in its letter.
Engine Capital LP., a New York City-based hedge fund formed in February 2013, has about $100 million in assets under management, according to Bloomberg. The fledgling hedge fund is led by Arnaud Ajdler, a veteran member of several corporate boards.
When contacted by The Oklahoman, Ajdler declined to discuss LSB beyond the contents of Engine's open letter to the board. Ajdler also declined to say how much of LSB's stock Engine owned or how long it had been an investor in the company.
Ajdler said he sent the letter to LSB's board in order to “be an agent for change and increase shareholder value,” but declined to comment further.
Ajdler previously served as a managing partner for the activist investor firm Crescendo Partners II LP, where he served on the boards of several companies pressured by Crescendo to make governance changes.
Ajdler currently serves on the board of Motherhood Maternity parent company Destination Maternity Corp. Destination's founder and CEO left the company soon after Ajdler joined its board in 2008.
He also served on the board of Lane Bryant parent Charming Shoppes Inc. from 2008 until the company was sold in 2012, as well as the board of the casual dining chain O'Charley's until it was also sold in 2012.
Engine Capital has said it believes LSB Industries stock is significantly undervalued and that the company could be worth about $1.5 billion, about twice its current estimated enterprise value of about $850 million. The company's stock should be trading between $65 to $75 per share, Engine said in its letter, while the value of the stock closed around $36 per share Monday.
Ongoing maintenance issues and downtime for the past year at LSB's ammonia plant in Pryor have also been an issue for LSB. The company reported last week that the plant was down again due to excessive vibrations in a compressor. The company expects the plant to be running again by the end of the month.
“We think that this significant value gap is caused by the company's poor governance structure, poor corporate structure, history of poor communication with shareholders and a recent history of over-promising and under delivering on operational matters,” Ajdler said in the letter.