Methanex is challenged by activist investor

The largest shareholder of the methanol producer Methanex wants to install four directors on the firm’s board because of a difference of opinion over a major capital project.

M&G Investments, an investment fund with nearly $340 billion under management, owns 16.5% of Methanex’s stock and has been a shareholder since 2007.

Activist investors are typically smaller shareholders. For example, Cruiser Capital Advisors recently struck a deal to appoint two directors to Ashland’s board while owning only 2.4% of the specialty chemical maker.

Acting as an activist is unusual, M&G says, and it “does not undertake this step lightly.”

At issue is a methanol plant that Methanex wants to build in Geismar, Louisiana. M&G says the facility, which would cost more than $1 billion, will add too much debt to Methanex’s balance sheet in a cyclical industry and could bankrupt the company if methanol prices were to decline sharply. “Shareholders would risk losing the total value of their investment,” M&G says in a letter to Methanex shareholders.

M&G would rather Methanex take on a partner for the project to limit the risk and instead focus on returning cash to shareholders by buying back stock.

In response, Methanex says it can pursue the Geismar investment while remunerating shareholders. “Methanex has significantly increased its production capacity while maintaining a strong balance sheet and financial flexibility,” the company says in a statement.

Methanex had a banner year in 2018, largely due to strong methanol prices. The company’s sales increased 28% to $3.9 billion, and operating profits rose 74% to $830 million. It also restarted a production line in Chile that had been idle since 2007.

The firm sees a positive outlook for methanol, which is in demand from Chinese firms that convert it into ethylene and other olefins. Methanol is also used to make chemicals such as formaldehyde and acetic acid.