Huntsman fends off activist investor

Huntsman shareholders backed the chemical company’s management and its CEO, Peter Huntsman, and voted against four board members proposed by the activist investment firm Starboard Value. The outcome was a setback for Starboard, a loser in two such proxy battles in a row.

Starboard revealed in January that it owned 8.6% of Huntsman’s shares outstanding, making it one of the company’s largest shareholders. At the time, Starboard said it wanted to get four new directors on Huntsman’s board during elections at its annual meeting on Friday, March 25.

The four directors were Jeffrey C. Smith, a Starboard managing member; James L. Gallogly, former CEO of LyondellBasell Industries; Sandra Beach Lin, a former Celanese executive; and Susan C. Schnabel, former chief financial officer of retailer PetSmart.

In the weeks that followed, Huntsman and Starboard traded barbs through press releases, presentations, and reports. Huntsman attacked Starboard’s nominees, saying, for example, that Gallogly’s experience as LyondellBasell’s CEO from 2009–2015 isn’t pertinent because Lyondell is a commodity chemical company, not a specialty chemical maker like Huntsman.

Meanwhile, Starboard laid into what it said were Huntsman’s multiple past failures to reach announced earnings targets. It also criticized the company for filling its board with friends, former employees, and people with financial ties to the Huntsman family.

Huntsman announced on Friday that shareholders at the annual meeting voted to elect all 10 of the company’s director nominees to the board. In a statement, Peter Huntsman said “the outcome of today’s shareholder vote is validation of our portfolio strategy and recognition that the Huntsman of today is vastly different than the Huntsman of five years ago.”

Starboard released a letter to Huntsman shareholders noting that it still owns about 8.8% of the company’s outstanding shares. Although final results of the shareholder vote have yet to be released, Starboard said it appears as though less than 50% of the shares outstanding supported the company’s nominees.

“We hope that the Board recognizes that this clearly shows that shareholders not only expect management to fulfill its promises, but also expect the Board to hold management accountable for these promises,” the letter said.

The letter reiterated what it called several new promises Huntsman has made since Starboard became involved with the company, including one to generate at least $1.4 billion in earnings before taxes this year and one to spend less than $500 million on any single acquisition. “While we may not be on the Board, rest assured that we will be watching with great interest,” the letter said.

Beating an activist investor on board election day isn’t always the end of the story for a targeted company and its CEO. In 2015 DuPont CEO Ellen Kullman won a similar battle against the investor Nelson Peltz and his firm Trian Fund Management. But Kullman resigned several months later after disappointing earnings news. By the end of the year DuPont was in talks to merge with Dow.

For Starboard, the failure to win seats on Huntsman’s board represents a second loss in a row, notes Iuri Struta, vice president for activism at Insightia, a provider of information on shareholder activism and corporate governance. In September, shareholders of the data storage company Box rejected Starboard’s three-person director slate, delivering Starboard its first board-vote defeat in 8 years.

Starboard has been feared by companies since 2014, Struta notes, when it won all the board seats at the restaurant company Darden. After that event, most companies have chosen to settle with Starboard rather than let the contests come up for a vote. That was the case at the agricultural chemical company Corteva, which last year agreed to appoint three Starboard directors to its board. Starboard had advocated a slate of eight new board members. Corteva’s CEO, James Collins Jr., subsequently retired.

Struta says it’s hard to know what Starboard will do now that it failed to win any seats at Huntsman, but he notes that the firm significantly reduced its shareholding in Box soon after losing the contest there. “Starboard typically likes to move on quickly to its next target,” he says.