GCP Adds Directors as Starboard’s Control Contest Advances

randall dearth is starboards new director
Facing a change of control contest, the construction products technologies company added two directors and moved to remove a board member installed by Jeff Smith’s activist fund last year.

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Facing a change of control director contest launched by Starboard Value LP, GCP Applied Technologies Inc. (GCP) on Friday, April 3, nominated two directors and ousted one activist-backed board member.

The board shakeup represents the latest strategy by the chemical and construction material company to defeat a contest launched in January by Jeff Smith’s activist fund.

The New York-based fund on Thursday filed a definitive proxy statement for its effort to install eight dissident directors on a 10-person board. Starboard, which owns a 9% stake, settled with GCP last year in a deal that added two outside directors Marran Ogilvie and Clay Kiefaber.

In its release Friday, Cambridge, Mass.-based GCP said it was expanding its board by one to add Armand Lauzon, an ex-CEO of C&D Technologies Inc., and John McPherson, a former chief strategy officer for Vulcan Materials Co. GCP also plans to remove Ogilvie, one of the directors Starboard installed last year, from its board.

The removal appears to be intended to reduce Starboard’s influence at GCP. However, Ogilvie also could become overboarded if she were to remain on GCP’s board. According to relationship mapping service BoardEx, a sister publication to The Deal, Ogilvie serves on three other boards. She also was nominated by Starboard as part of the fund’s change-of-control slate of director candidates at healthcare services company Mednax Inc. (MD)

Recently, GCP offered to install three independent directors nominated by Starboard, presumably including the two who were already on the company’s board. In addition, it offered to find a fourth mutually-agreed-upon director. However, Starboard rejected the offer.

 

Starboard may want to shake up GCP’s C-Suite. In a letter issued April 2, Starboard said it recognizes the Covid-19 crisis has created a difficult environment for many companies but that GCP needs “strong leadersihp and oversight” during and after the crisis.

In August, GCP installed a new CEO, Randall Dearth, who had served as COO and president. The prior CEO, Gregory Poling, took the role of chairman in August. Overall, six of 10 directors after the annual meeting – assuming Starboard fails to install its slate – will have joined the board in the past three years. The company said that Dearth achieved $33 million in cost savings through 2019 and cut debt by $450 million.

It is unclear whether Starboard’s goal with its board takeover effort is to have GCP sell itself. The activist fund often pushes for auctions of target companies.

In February, 2019, GCP, which had separated from W.R. Grace & Co., launched a strategic review, including the potential sale of the business.

In June GCP concluded the review, saying the company and a financial advisor had engaged with strategic and private equity potential buyers and concluded that a sale would not “provide adequate” value to shareholders. During the review, Ogilvie and Kiefaber, served as directors.

A Starboard managing member noted in the settlement agreement in 2019 that the fund was supportive of the strategic review. It may be that the activist fund doesn’t believe GCP’s review was thorough enough and is hoping its directors would drive a renewed auction process after markets stabilize.

One key player is sometimes-activist 40 North Management LLC, which is affiliated with Standard Industries Inc., a building-materials rival industrial company, which own nearly 25% of GCP.

In March 2019, GCP installed a 15% anti-takeover poison pill. It appears the company installed the pill over concerns that 40 North and Standard Industries would seek to take control of the company without a chance for a proper strategic review. The pill essentially capped their stake at 25%. On March 13 GCP moved to hike its pill to 20% and extended it to March 2023.

Follow Ronald Orol on Twitter and LinkedIn.

About the author

Ronald Orol
Senior Editor at | + posts

Ronald Orol leads coverage of activist hedge fund managers, a high-profile group of corporate investors who press for blockbuster deals and were the subject of his book “Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.” Ron produces the Activist Daily and Activist Weekly briefings, which offer exclusives, trend pieces and breaking analysis about insurgent investors and their M&A efforts. Ron also authored “Corporate Governance in the Era of Activism,” a digital handbook for CNBC’s Jim Cramer. He previously worked as a financial regulation and activism reporter at MarketWatch and Dow Jones Newswires.

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