Voss Capital LLC on Tuesday, Nov. 23, launched a minority-slate director contest at Griffon Corp. (GFF), urging the company to expand an existing strategic review and consider spinning off or selling key divisions.
The fund, which is seeking to install three dissidents on a 14-person board, argued in a letter that the New York-based company owns “attractive businesses whose values are shrouded in an outdated conglomerate structure.”
Griffon which has an $1.5 billion market capitalization, operates in three units: consumer and professional products, which makes home and garden products, home and building products, which produces commercial and residential garage doors, and defense electronics.
In September, it said it had launched a strategic review for its telephonics unit, which houses its defense electronics business, noting that it had retained Lazard Ltd. as a financial adviser and Dechert LLP as legal counsel for the effort.
Voss Capital insisted that Griffon has problematic executive compensation, poor governance and few synergies among its different units. Travis Cooke, Voss Capital’s CIO, noted that CEO Ronald Kramer admitted to fielding “inbound calls from investment banks expressing interest in the company’s businesses…” He added that Kramer “admitted” that Griffon’s home and building products unit, if valued at the current average transaction multiple of 12 times Ebitda, could “recoup more than Griffon’s entire enterprise value.”
The fund wants Griffon to hire a bank to conduct a thorough strategic review for all its units.
Griffon’s home and building products unit, for instance, could be attractive to private equity firms with similar strategic units, or some strategic buyers.
Buyout shop giant KKR & Co. (KKR) acquired a key competitor to the unit, C.H.I. Overhead Doors, in a 2015 deal and could benefit from the increased scale. In addition, Sweden’s Assa Abloy AB, a conglomerate that has been acquiring building products companies in recent years could be interested. On Sept. 8, Assa Abloy acquired Spectrum Brands’ hardware and home improvement unit.
Griffon’s consumer and professional products unit as well as its telephonic unit, which develops radar and detection devices for navy ships and airplanes, could be attractive to domestic PE or strategic buyers. However, the telephonic unit is likely to see a more limited pool of buyers given national security concerns. Roughly two-thirds of revenue are generated by sales to the U.S. government.
Raymond James noted in a Nov. 16 report that the telephonics unit is its lowest return business but “possibly one of the most richly valued by strategic peers.”
Trust Securities analysts said in a Nov. 16 note that its move to review strategic alternatives for its defense electronics business “was a good move.”
The board battle also focuses on governance and a lack of diversity on Griffon’s board. Only two of its 14 directors are women, but the company on Nov. 16 said it set a commitment to further diversify its board so that 40% of its directors by 2025 would be women or persons of color.
Voss will nominate Gerry Bollman, former group CFO at Reliance Worldwide Corp. (RLLWF), H.C. Charles Diao, an ex-VP of Finance and corporate development at DXC Technology Co. (DXC), and Leviathan Winn, CFO of Zulily, a unit of Qurate Retail Inc. (QRTEA).
The activist’s candidates are all male but the fund notes that it “privately nominated two highly qualified minority board candidates that would add meaningful perspectives…” Winn is Black and Diao is Asian.
Some incumbent Griffon independent directors are overtenured and could be targeted for removal. According to relationship mapping service BoardEx, a sister company to The Deal, directors Robert Harrison, 85, an admiral, Henry Alpert, 74, and William Waldorf, 83, have held directorships for 18, 27 and 59 years.
According to FactSet Research Systems Inc., insiders, including Kramer, own about 7% of Griffin. The company’s largest outside investors, BlackRock Inc. (BLK), Vanguard Group Inc. and Mario Gabelli’s GAMCO Asset Management Inc., own 12%, 8% and 10%% respectively. Voss Capital owns about 2.1%.
Griffon’s stock dropped about 10% on Nov. 16 after it reported weaker-than-expected fiscal fourth quarter earnings.
In early 2020, Voss and other funds urged Rosetta Stone Inc., a language learning software provider, to sell the company or auction off assets. The fund owned 5.9% of Rosetta, which sold itself in September 2020 to PE firm Veritas Capital Management for $792 million, a more than 80% premium to its share price when word of a possible sale emerged.
Griffon did not return requests for comment.