OM Group, Inc. (OMG): FrontFour Expresses Concern Over Stock Underperformance and Targets $60 per Share

In conclusion, in order to address these and other issues, the investor proposed several measures to be implemented. OM Group should conduct a buyback program and repurchase around $250 million worth of stock at $33 per share in 2015. Regarding cost cutting initiatives, the company should have at least $50 million of run-rate cost savings by 2016, with $15 million recognized over the course of the current year. OM Group should also incur $30 million of cash costs to implement restructuring and reduce its working capital by the same amoung by 2016. In addition, OM Group should have a valuation multiple of 8.5x EBITDA, which represents the midpoint of estimated target range and a corporate tax rate of 25%.

Overall, FrontFour considers that the main problem of OM Group, Inc. (NYSE:OMG) is that it has been undermanaged and there is a potential for unlocking value that would benefit all shareholders. The company needs an improvement in board oversight that will make it well-positioned to execture on its expanding market opportunities. The fund will continue to engage in discussions with the company, but it also mentioned that it might consider nominating its own slate of candidates to the company’s board.

OM Group, Inc. (NYSE:OMG) is a specialy chemical, industrial growth company that operates in four segments: magnetic technologies, advanced materials, specialty chemicals and battery technologies. The stock reacted positively on FrontFour’s latest move as it climbed around 8%. However, over the last 52 weeks, the share price of OM Group dropped by 18%, while the specialty chemicals industry added around 12% over the same period.

Following raising its stake, FrontFour has become one of the largest shareholders of OM Group, Inc. (NYSE:OMG), but other investors also seem to see value in the stock. One of the investors with a great track record, Steven Cohen is also bullish on the company, as his fund Point72 Asset Management raised its stake by 65% during the third quarter of 2014 to 1.08 million shares. On the other hand, Chuck Royce’s Royce & Associates cut its position by 26% to 1.12 million shares.

The full letter is available below:

FrontFour Letter to OM Group

Disclosure: none