Trian Is Seeking Ouster of PPG CEO, Split of Chemical Maker

(Bloomberg) -- Trian Fund Management wants PPG Industries Inc. to oust its chief executive officer and reinstall his predecessor in an effort to improve performance before possibly splitting the chemicals manufacturer.

Nelson Peltz’s New York-based investment firm, which disclosed a 2.9 percent stake in PPG this month, blames CEO Michael McGarry for the company’s underperformance over the past three years, according to a statement confirming an earlier report by Bloomberg. Trian has talked to former PPG Chairman and CEO Charles Bunch, who is prepared to return to the company, according to people familiar with the matter.

Ed Garden, Trian’s co-founder and chief investment officer, urged PPG’s board to bring back Bunch immediately.

“Chuck is a star,” Garden said Thursday at the C4K Investors Conference in Toronto. “He still owns the stock. He’ll hit the ground running. He knows how to run this exact business.”

PPG shares rose 4.1 percent to $101.83 at 12:53 p.m. in New York trading.

While it’s open to listening to Trian on other topics, PPG’s board of directors unanimously supports McGarry as chairman and CEO, the company said in a statement. The board also believes PPG’s strategy has positioned it to drive growth and increase shareholder value, according to the statement.

Bunch declined to comment.

CEO Criticism

Trian’s criticism stems from several perceived missteps under McGarry, including the failed takeover of Dutch rival Akzo Nobel NV last year, slower earnings-per-share growth and an accounting probe announced in April, according to a presentation. The firm is also disappointed that PPG has lost business from home-improvement chain Lowe’s Cos., which said in February it would use Sherwin-Williams Co. as its exclusive U.S. paint supplier, it said.

McGarry took over as CEO in 2015 and added the role of chairman after Bunch retired the following year. The company has issued profit warnings in each of the past three years, including this month when it said third- and fourth-quarter earnings would be lower than expected.

Shares in the maker of paints and coatings fell the most in two years on that news, adding to a decline that’s seen them fall almost 8 percent since Bunch announced his retirement, according to data compiled by Bloomberg. Rival Axalta Coating Systems Ltd. reiterated its own third-quarter guidance on the same day as PPG’s profit warning was issued.

Garden said Thursday that McGarry has “never come close” to hitting his publicly stated goal of 10 percent growth in earnings per share.

“We’re known for working with management teams,” Garden said. “We’re known for being constructive. But this is an extraordinary situation. These are extraordinary circumstances.”

PPG Split

After replacing McGarry with Bunch, Trian wants PPG to consider splitting the company in two, with one unit taking its global architectural coatings business and a second focused on manufacturers and industrial businesses. Trian contends the separated units could find strategic partners to help them keep pace with the industry’s consolidation.

“Despite the investor clout Chuck Bunch retains, PPG will likely vigorously defend itself and support current CEO McGarry,” Christopher Parkinson, an analyst with Credit Suisse Group AG said in a note to clients.

Splitting up the company would likely be an “uphill battle” given the structural differences with Sherwin-Williams and PPG’s architectural business that would likely lead to a valuation gap, Parkinson said.

‘Naturally Frustrated’

He said that while shareholders are “naturally frustrated,” the sector as a whole has experienced an unprecedented period of raw materials inflation, foreign exchange volatility and a fall-off in key markets during McGarry’s tenure.

“There is still underperformance -- but the criticism shouldn’t be solely directed at McGarry,” Parkinson said.

Trian isn’t the only investor targeting the chemicals industry. RPM International Inc., a provider of specialty coatings and sealants, reached an agreement with Elliott Management Corp. in June for two new directors to be appointed to its board and for the company to launch a review of its operations.

Trian, co-founded by Peltz, Garden, and Peter May in 2005, shuns the term activist investor, preferring to be known as a highly engaged share owner. The firm typically focuses its investments on consumer, industrial and financial companies, often targeting large conglomerates. Bunch serves on the board of Mondelez International Inc. with May.

With about $10 billion in assets under management, Trian currently has several active campaigns including at Procter & Gamble Co., where Peltz is a board member, and General Electric Co., where Garden sits on the board.

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