LSB Industries, Inc. (LXU): Starboard Raises Activist Stake as Company Agrees to Review Its Strategic Proposals

Jeff Smith‘s Starboard Value is bullish on LSB Industries, Inc. (NYSE:LXU) and has recently boosted its position, as it was revealed in a new filing with the Securities and Exchange Commission. Starboard reported ownership of 1.63 million shares of the company, versus 725,000 shares the fund disclosed in its latest 13F filing. Following the increase, Starboard owns an activist stake that amasses 7.2% of LSB Industries common stock.

Jeff Smith

Starboard Value is a big activist fund that over the last several months has made some important moves aimed towards increasing the shareholder value at several companies. One of the most important is the fund’s proxy fight with Darden Restaurants, Inc. (NYSE:DRI), which Starboard won and managed to replace the entire slate of directors on the company’s board. Moreover, the fund currently tries to pursue MeadWestvaco Corp. (NYSE:MWV) into spinning off its specialty chemical business. Mr. Smith has also gone activist on Yahoo! Inc. (NASDAQ:YHOO) and initiated a position that contains 7.72 million shares as of the end of September. In a letter sent to Yahoo’s CEO Marissa Mayer, Mr. Smith suggested that the company should spin-off its equity assets and consider a merger with AOL, Inc. (NYSE:AOL). The investor is also trying to take private RealD (NYSE:RLD), considering that it will benefit the shareholders.

With this in mind, Starboard raising its activist position in LSB Industries, Inc. (NYSE:LXU) should not be overlooked, as the fund might soon make some proposals aimed towards maximizing the company’s value. The fund initiated a stake during the first quarter of 2014, initially holding 1.12 million shares, but it reduced its position during the second and third quarters. The stock has had a volatile year, so far, and its stock lost around 14% year-to-date. In its latest filing regarding LSB Industries, Inc. (NYSE:LXU), Starboard said that it considers the stock to be undervalued, but also it mentioned that it has entered into a settlment agreement with the company, under the terms of which the company agreed to evaluate some of the strategic proposals that Starboard stated earlier this year.

Starboard considers that LSB Industries, Inc. (NYSE:LXU) should focus on improving its operation performance, evaluate alternative financial structures that will create more value, as well as separating the company into two businesses. Earlier this year, Starboard and LSB reached another agreement regarding LSB’s board composition and the formation of a strategic committee. The investor, however, agreed not to nominate or recommend any person to be elected at the 2014 Annual Meeting of Shareholders. The fund added that it has had a constructive dialogue with LSB’s management and board of directors and that it considers that the company has some alternatives that can create significant value for shareholders.

LSB Industries, Inc. (NYSE:LXU) is a diversified company that is engaged in manufacturing and marketing operations in the chemical and climate control segments through its subsidiaries. The company’s stock lost ground amid a decline in revenues and earnings with revenue falling to $171 million in the third quarter from $177 million a year ago, and the company turning to a loss of $0.17 per share, from a profit of $0.43 per share.

Martin Whitman‘s Third Avenue Management is another shareholder of LSB Industries, Inc. (NYSE:LXU), which owns close to 843,700 shares as of the end of the third quarter. Jeffrey Gendell‘s Tontine Asset Management decreased its position by 2% during the July-September period to 650,600 shares.

In conclusion, with LSB’s stock decreasing and Starboard stepping up, LSB Industries, Inc. (NYSE:LXU) might represent an attractive small-cap play for retail investors. This is also supported by a consensus target price of $47.00 for the stock, and Starboard’s great track record of activist moves with a positive impact. The stock of Darden Restaurants, Inc. (NYSE:DRI), for example, appreciated by more than 10% since Starboard managed to replace the board of directors, which also made analysts bullish.

Disclosure: none