In a new filing with the Securities and Exchange Commission, Starboard Value, an activist hedge fund managed by Jeffrey Smith, disclosed a letter sent to the board of LSB Industries, Inc.(NYSE:LXU), in which the investor, among other things, nominated a slate of five candidates to be elected to the company’s board of directors, including Mr. Smith. Starboard owns around 1.73 million shares of the company, the stake amassing 7.6% of the company’s stock. During the fourth quarter, the fund raised its exposure to the company by 130%, which represents one of the highest increases during the October-December period. In fact, the investor more than doubled its stake in only three companies, the other two being Family Dollar Stores, Inc. (NYSE:FDO) and Integrated Silicon Solution, Inc. (NASDAQ:ISSI).
Starboard also said in its letter that LSB Industries, Inc.(NYSE:LXU) is “deeply undervalued” and the company should take advantage of some opportunities in order to increase the shareholder value of the company. The fund also added that the company requires significant changes in its opertations, strategic directions management structure, and corporate governance. According to the letter, LSB Industries has some issues with its operating and financial performance and Starboard’s earlier attempts to address these issues have been ignored by the management and the board of directors. In April, 2014, Starboard and LSB Industries reached a settlement under the terms of which the investor appointed two directors to the board, although the issues outlined by the investor have not been addressed.
The investor also outlined the financial underperformance of LSB Industries, Inc.(NYSE:LXU), which missed most of its quarterly earnings estimates since the third quarter of 2012. Obviously each financial report sent the stock down and Starboard stated the stock lost a cumulative 32% during each day of earnings reports. Moreover, the operating performance is a result of the company’s poor corporate governance, which mainly results from the company being run as a family-owned business, despite the fact that the company went public over 30 years ago. In order to address the issue with corporate governance, which will also led to other changes, Starboard nominated five candidates to be elected at LSB Industries’ 2015 Annual Meeting: Peter Feld, Louis Massimo, Andrew Mittag, Jeffrey Smith, and Lynne White.
The full text of Starboard’s letter can be accessed below:
Among over 700 funds that we track, only 12 investors disclosed long positions in LSB Industries, Inc.(NYSE:LXU), with Starboard being the largest shareholder, followed by Jeffrey Gendell’s Tontine Asset Management and Martin Whitman’s Third Avenue Management, which own 716,100 shares and 264,700 shares respectively.