Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

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

FrontFour Capital Group, a Greenwich, Connecticut-based fund led by Stephen Loukas, David A. Lorber, and Zachary George, has boosted its position in OM Group, Inc. (NYSE:OMG) and went activist on the company. As a new filing with the Securities and Exchange Commission showed, FrontFour owns over 1.79 million shares of OM Group, up from 268,200 shares held earlier. The stake is equal to 5.8% of the company’s common stock. Moreover, the investor issued a letter sent to Joseph M. Scaminace, Chairman of the Board and CEO of OM Group, in which it expressed concerns with the company’s performance and destruction of shareholder value.

David Lorber FrontFour Capital

In their letter, FrontFour mentioned that one of its concerns is the fact that the company has missed its financial targets and cut down its revision of EBITDA guidance twice over the course of last year along with the reduction in long term revenue growth estimates. Moreover, the investor stated that OM Group, Inc. (NYSE:OMG) has provided weak returns on capital and keeps pursuing a distructive M&A strategy.

“Additionally, the Company has a bloated cost structure, and is significantly overcapitalized given the Company’s net cash position and the excess cash trapped within working capital. We believe these cumulative factors have caused the Company’s shares to significantly underperform both the broader equity market and its peer group over a sustained period of time,” the letter added.

In addition, the fund stated that the stock of OM Group, Inc. (NYSE:OMG) is significantly undervalued, but there are ways that can fix this situation, such as undertaing some cost-cutting initiatves worth at least $50 million, the release of $30 million in working capital, and a buyback of $250 million. The implementation of this measures could bring the stock to trading at around $60 per share, which is more than double comparing to the current price of the stock.

Regarding OM Group’s M&A strategy, FrontFour stated that it destructed the value of the company, since the company acuired around $1.5 billion in net assets, which is significantly above the current market capitalization of the company, which amounts to around $840 million. The investors considers that the shares are undervalued because shareholders are afraid that OM Group, Inc. (NYSE:OMG)’s cash balances and debt capacity will be used for further destructive acquisitions. Therefore, the company should cease any acquisitions until it can get some new perspectives.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.