Owens-Illinois Inc (OI): Atlantic Investment Raises Stake; Alexander Roepers Expresses Disappointment with CEO

 Alexander J. RoepersAtlantic Investment Management has strengthened its exposure to its largest equity position in Owens-Illinois Inc (NYSE:OI). In a new filing with the Securities and Exchange Commission, Atlantic disclosed holding 12.09 million shares of the company, up from 11.11 million shares held earlier, according to the fund’s 13F filing. Following the increase, the fund’s activist stake amasses 7.3% of Owens-Illinois’ common stock. In addition, the investor disclosed a letter sent to the company’s Lead Independent Director Peter S. Hellman, in which Atlantic expressed its disappointment with the stock’s underperformance and company’s CEO, chairman, and President Albert Stroucken.

Alexander Roepers

The investor stated that the company’s stock has underperformed its peers in the last 3-5 years, despite the fact that Owens-Illinois Inc (NYSE:OI) is “the largest producer of glass bottles in the world.” Mr. Roepers stated in the letter that the company has a monopoly or duopoly positions in all of its key markets with high barriers to entry and strong customers, which should provide a solid capital appreciation, but because of the current CEO’s actions the stock has been losing ground.

“Mr. Stroucken, which we believe is behind the repeated operational missteps, key employee departures, belated restructurings and an overall lack of effectiveness in running this company. Further, Mr. Stroucken leaves most of the messaging to investors to his CFO and is quick to assign blame to macro factors when earnings miss the target,” the letter added.

 In this way, Atlantic plans to initiate a dialogue with other stakeholders of Owens-Illinois Inc (NYSE:OI) in order to address the lack of shareholder value creation under Mr. Stroucken’s leadership of the company. Mr. Roepers considers that the board has to end the management credibility crisis and put the company on “a path towards sustainable long-term shareholder value creation.

As the first steps that the board should take, the investor mentioned an early retirement and succession plan for the current CEO. The company should also separate the roles of chairman and CEO and initiated a small dividend of $0.08 per share, which would give the company a 1.3% yield. Mr. Roepers added that Owens-Illinois Inc (NYSE:OI) could move to mark-to-market pension accounting, which would increase earnings per share by $0.50, and re-initiate $3.50 EPS target, that can be achieved by 2016.

Atlantic Investment has been a long-term shareholder of Owens-Illinois Inc (NYSE:OI) holding shares for several years. Meanwhile, the stock dropped by around 20% over the last five years. Overall, out of more than 700 funds from our database, 36 funds reported long positions in the company in the latest round of 13F filings, flat over the quarter. Aside from Mr. Roepers, among other investors that are bullish on the stock are Robert Rodriguez and Steven Romick of First Pacific Advisors and Thomas Steyer of Farallon Capital. First Pacific raised its stake by 2% during the third quarter to 6.28 million shares, while Farallon upped its position by 22% to 5.66 million shares.

In addition to Owens-Illinois, Mr. Roepers holds several other important activist positions. A couple of days ago, Atlantic disclosed holding 3.79 million shares of Triumph Group Inc (NYSE:TGI), equal to 7.4% of the company, while at the beginning of December, the fund reported raising its stake in Oil States International, Inc. (NYSE:OIS) by 15% to 2.73 million shares, equal to 5.1% of the company’s stock.

Disclosure: none