Elementis PLC on Wednesday responded publicly to an open letter from Franklin Templeton, saying that it disagrees with the shareholder’s request to sell off its ‘attractive assets’.
Shares in the speciality chemicals firm were up 12% at 125.00 pence in London on Wednesday afternoon.
Franklin Mutual Advisors LLC, an investment advisory firm parented by Franklin Templeton, published an open letter earlier on Wednesday requesting that the Elementis board ‘initiate an immediate sale of the company’.
London-based Elementis said it has discussed the matter at length with Franklin, which controls a 9.8% shareholding in Elementis on behalf of its clients.
However, Elementis responded: ‘After careful consideration, with the support of its advisors, the board does not consider an immediate sale of the company to be in the best interests of its shareholders.’
The company added: ‘The board notes and agrees with Franklin’s comments about Elementis’ attractive assets.
‘In particular, the comments about our healthy market positions, strong gross margins that demonstrate the premium nature of our products and potential for upside in a cyclical recovery alongside substantial operational improvement initiatives.’
In its open letter, Franklin said that while it was initially ‘impressed with Elementis’s healthy market position,’ its more recent capital allocation decisions have caused ‘a shocking amount of shareholder value destruction’.
It said Elementis has significant strategic value but is currently too small to accomplish its goals, and would therefore benefit from merging with a larger company.
However, Elementis said in its response that since the sale of its Chromium business in January, it ‘is now a higher growth, higher margin, less cyclical’ company and will be able to deliver better earnings and margins with lower volatility going forward.
The FTSE 250 listing in late July said pretax profit increased to £34.9 million from £23.2 million, although revenue fell by 6.1% to $363.8 million from $387.4 million due to weak market demand and destocking in its Coatings division.
On Wednesday, Elementis said this was a ‘resilient’ performance in ‘challenging macro-economic conditions’.
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