Concerned by Venator’s Alarming Long-Term
Financial Underperformance, Massive Shareholder Value Destruction,
Apparent Lack of Strategic Direction and Opaque Approach to
Shareholder Engagement
Has Attempted to Engage with the Board for Past
Seven Months and Experienced Delay Tactics and Gamesmanship
Believes Substantial Value Can Be Realized at
Venator but the Current Board Lacks the Credibility and Skill Sets
Needed to Evaluate Paths Forward without New Independent
Shareholder Perspectives
Will Not Hesitate to Pursue All Available
Avenues to Protect Best Interests of All Shareholders
Today J&T MS 1 SICAV (together with its affiliates,
“J&T”), which owns approximately 14.3% of Venator Materials Plc
(“Venator” or the “Company”) (NYSE: VNTR), making it the Company’s
second-largest shareholder, sent a public letter to Venator’s Board
of Directors (the “Board”). The letter outlines J&T’s concerns
regarding the Board’s apparent unwillingness to meaningfully engage
with J&T, as well as the Company’s stark financial and stock
price underperformance and apparent lack of strategic direction.
J&T also stresses that the incumbent Board appears to have
squandered its credibility with investors and should not be trusted
to chart the course forward for Venator without additional
independent shareholder representation.
The full text of the letter follows:
January 10, 2023
Dear Members of the Board:
As you know, J&T MS 1 SICAV (together with its affiliates,
“J&T” or “we”) is the second-largest shareholder of Venator
Materials Plc (“Venator” or the “Company”), with an approximately
14.3% ownership stake. We are writing to express our serious
concerns about the direction the Company has taken under the watch
of the current Board of Directors (the “Board”), and to reiterate
our belief that additional independent shareholder representation
is urgently needed in the boardroom.
To be clear, J&T is not an “activist” fund, and we generally
do not go public with our concerns about a company. 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. We now feel compelled to make our views
known in order to protect our own investment and that of our fellow
public shareholders.
The current Board, which is dominated by affiliates of SK
Capital Partners (“SK Capital”) and Huntsman Corp. (“Huntsman”),
has overseen massive value destruction. Venator’s share price has fallen from its peak of
$25.501,
shortly after its August 2017 IPO, to less than a dollar
today. 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. In our view, the Board has not succeeded in
representing the best interests of all shareholders and driving
value creation.
The situation has become so dire that the Company received
written notice in November of 2022 that it faces a potential
delisting from the New York Stock Exchange. Additionally, the
Company announced the same month that it had retained restructuring
experts Alvarez & Marsal to advise it “on a range of
operational and financial actions.”2 Given the deteriorating
situation and the Board’s poor oversight, we believe that the
incumbent directors have forfeited the right to maintain the status
quo and chart the path forward for Venator.
We first reached out to the Company in May of 2022 and made
clear our desire to be a long-term shareholder of Venator and
engage constructively with the Board. We have since tried to work
with you on a plan to refresh the Board, initially proposing a
Board observer position for myself as a representative of a major
shareholder as well as an additional new director. After you
indicated that you had no intention of creating a Board observer
role, we proposed myself as a director candidate and noted we would
also suggest an additional candidate. At that point, you indicated
that the Nominating and Corporate Governance Committee (the
“Committee”) “remains open to considering new candidates” for the
Board and that it welcomed “information” around these proposals.
Subsequently, I submitted a director questionnaire and additional
information; however, you replied that the “Committee concluded
that the size of the current Board is sufficient and provides
effective governance.” This fact pattern – underscored by the
reality that our engagement was purely with management and at no
time with any non-management director – indicates to us a lack of
any sincere intention on the part of the Board to consider the
addition of new independent shareholder representatives.
Further, in our view, the appointment of Miguel Kohlmann –
another affiliate of SK Capital who replaced independent director
Kathy Patrick as a director in August 2022 – seems to have been a
purely defensive maneuver designed to avoid giving a significant
independent shareholder representation on the Board. We strongly
disagree with your conclusion that the current Board provides
effective oversight at the Company and is properly constituted. We
believe the incumbent directors are not truly independent, and that
shareholder-driven change is desperately needed to bring fresh
perspectives and credibility to the Board.
We believe an objective review of the current Board’s track
record demonstrates the urgent need for change. We highlight the
following:
The Current Board Has Overseen Massive
Value Destruction
- Venator share price has declined precipitously since its
IPO. The Company’s share price is down 96% since its IPO price
in August 2017, and 78% since the January 4, 2021 announcement that
SK Capital’s representatives had joined the Board.3 Additionally,
Venator’s total shareholder return (“TSR”) is negative 71% and
negative 80% for the past one- and three-year periods,
respectively.4 Frankly, in our view, Venator is by far the worst
financially performing titanium dioxide producer – and one of the
worst in the entire chemical sector.
- The Company has had negative cash flow since its IPO.
Through the third quarter of 2022 – without the aid of one-time
proceeds from the Tronox litigation – Venator’s cash flow was
negative $220 million. This inability to produce positive cash flow
has likely hindered reinvestment in the Company.
- Venator has delivered severely low gross margins. The
Company’s average gross margin between 2019 and 2021 was only 9%
despite the Company's claims that it has a strong exposure to the
high-margin specialty segment, and appears to have been used to
cover SG&A alone, rather than to build a base for shareholder
returns. Moreover, gross margin was negative in the third quarter
of 2022.
- The Company’s efforts to improve the business’ performance
have failed. Unfortunately, Venator was unable to capitalize on
an upturn in the market for titanium dioxide in 2021. In fact,
Venator reported a lower adjusted EBITDA and adjusted EBITDA margin
that year than in 2019. Its adjusted EBITDA margin was only 8.1% in
2021 and it reported a negative cash flow over the 2019 to 2021
period. Its closest peers, meanwhile, were boasting record
earnings. For example, over the 2019 to 2021 period, Chemours
delivered a 60% increase in titanium segment adjusted EBITDA, while
Tronox delivered a 54% increase and Kronos delivered a 19%
increase. Venator, on the other hand, delivered a disappointing 7%
decrease in total adjusted EBITDA during that same period.
Venator Has No Apparent Plan and Has
Poorly Communicated with Investors
- Venator has failed to articulate a go-forward strategy.
Updates are only communicated to shareholders through obligatory
SEC filings, while the Company offers no financial guidance and has
held no investor days, leaving us to question whether the Board and
management has any strategy to address the Company’s
underperformance.
- Venator’s actions seem limited to reactive steps.
Management and the Board seem to only tackle problems when they
arise with each new downcycle. Examples include the hiring of
Alvarez & Marsal once the Company was on the brink of being
delisted and the presenting of multiple “business improvement
programs,” which, despite being heralded as successes by Venator,
have not made any material impact on EBITDA.
- The Company’s lack of meaningful engagement with us
demonstrates a disregard for shareholder input. As noted above,
our discussions with the Company have only been at the management
level and have left us with the impression that we were
experiencing gamesmanship rather than genuine constructiveness.
Though Venator management and its advisors at points have offered
us selective access to MNPI, we believe a non-disclosure agreement
that restricts us without providing the full information available
to a director would not be sufficient. Moreover, information is not
the only thing we need – it is important that we have the
opportunity to influence VNTR’s turn-around strategy.
- Venator has been accused of misleading shareholders. For
example, the Company was accused of downplaying the extent of the
damage caused by its Pori plant fire around the time of its IPO,
resulting in a class action suit by shareholders.5
The Current Board Is Emblematic of Poor
Corporate Governance and Lacks Independence
- The Board lacks diversity of experience. Venator’s
directors all come out of – and have experience in – the chemical
industry. A public Company such as Venator, especially as it
embarks on evaluating paths forward, should have additional
perspectives on the Board, including individuals with experience in
areas such as corporate governance, finance, operations, cost
reduction and capital markets. For example, Venator’s peers such as
Tronox and Chemours have boards comprised of individuals with a
range of experience – not solely in chemicals. We strongly believe
that this lack of diverse experience has manifested itself in the
absence of a well-laid-out strategy.
- The Board is dominated by SK Capital representatives and
lacks diversity of thought. SK Capital acquired $100 million
worth of the Company’s shares from Huntsman in December of 2020 to
become a nearly 40% shareholder, and its representatives and/or
affiliates currently hold five of the eight Board seats. Yet, the
Company’s financial performance has only worsened under these
directors’ watch. Without a well-articulated plan – and based on
our prior engagement with the Company – we contend that SK Capital
is running Venator like a private company, as evidenced by its
eschewing engagement with shareholders.
- The Board lacks independence. Director Peter Huntsman,
whose company struck a deal with SK Capital for it to acquire
Huntsman’s remaining interest in Venator in December of 2020 (with
40% of Huntsman’s stake sold at the time and a 30-month option for
SK Capital to purchase the remaining 9%), should have initiated a
process to resign from the Board then. Another director, Daniele
Ferrari, is a former Huntsman executive and senior director at SK
Capital. Yet, Ferrari is chair of Venator’s compensation committee
while CEO Simon Turner (himself a former Huntsman executive) earned
between $5 million and $10 million a year despite the Company’s
underperformance. Finally, Miguel Kohlmann, who was appointed to
Venator’s Board in August 2022 is also affiliated with SK Capital –
serving as a director of Archroma, an SK Capital portfolio
company.
***
Based on conversations we have had with non-affiliated
shareholders, we believe many share our views. We strongly urge you to immediately add myself and
another independent director to be nominated by us to the
Board. I have roughly 20 years of experience ranging from
internal consulting, operational restructuring and simplification,
corporate finance and in addressing governance issues. In our view,
this insular Board would greatly benefit from a fresh perspective
with experience outside of the chemical industry and from a
director who approaches problems with a shareholder mindset.
If the Board continues to refuse to constructively engage with
us, we are prepared to exercise all of our rights as shareholders
to hold each individual director accountable.
Sincerely,
Martin Seyček Member of the Supervisory Board, J&T MS 1
SICAV
About J&T MS 1 SICAV J&T MS 1 SICAV is a
Czech-based investment structure, established by long-term business
partners Michal Snobr, an experienced investor in capital markets
and energy sector expert, and J&T FINANCE GROUP SE, a leading
private banking and financial group in CEE, via its investment fund
J&T ARCH INVESTMENTS.
1 Stock price at market close on October 26, 2017. Source:
Bloomberg. 2 Q3 2022 Venator Materials PLC Earnings Call, November
18, 2022. 3 As of market close on January 6, 2023. Source:
Bloomberg. 4 As of market close on January 6, 2023. Source:
Bloomberg. 5 “Chemical Maker Downplayed Massive Damage at Facility
Before IPO, Investors Claim,” Courthouse News Service, February 21,
2019,
https://www.courthousenews.com/chemical-maker-downplayed-massive-damage-at-facility-before-ipo-investors-claim/.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230110005394/en/
Investors: Martin Seyček martin.seycek@hamaga.cz
Media: Longacre Square Partners Dan Zacchei / Joe Germani
dzacchei@longacresquare.com / jgermani@longacresquare.com
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