Largest GCP Investor Is Said to Support Starboard Campaign


(Bloomberg) -- The largest shareholder in GCP Applied Technologies Inc. has come out in support of activist investor Starboard Value’s fight to take control of the chemical maker’s board.

David Winter and David Millstone own 24.4% of GCP through their firm Standard Industries Inc. and the private investment platform 40 North Management. The pair, who are co-chief executive officers at Standard Industries and control 40 North, said in a letter to the company’s board Tuesday that while they have patiently supported the company since its spin off from W.R. Grace & Co. in 2016, change was needed.

“GCP’s board of directors has proven itself incapable of making sound strategic and tactical decisions in the best
interests of the company and its stakeholders,” the pair said in the letter, a copy of which was obtained by Bloomberg. “We are left with no other tenable course of action but to support Starboard Value’s call for an almost complete replacement of GCP’s board.”

Starboard has nominated eight directors at GCP in an effort to take control of its board. The New York hedge fund, which owns a 9% stake in the company, argues GCP has underperformed its peers and is in need of a “new start.”

Winter and Millstone’s support will be pivotal in the proxy fight given the size of their stake.

The pair, who rarely go public with their views, said a number of factors undermined their confidence in the board, including GCP’s underperformance relative to its peers and its inability to grow despite a number of acquisitions. It also noted that every year since the spinoff, management has revised down its annual guidance “highlighting troubling lack of control over the business.”

“Prior to the COVID-19 crisis, despite leading positions in many of its product lines and a buoyant macroeconomic backdrop, GCP’s business failed to grow,” they said.

The pair argued that GCP lacks a coherent strategy under the current leadership, and is falling behind its peers in terms of product innovation and the reach of its salespeople. A representative for Winter and Millstone declined to comment.

Starboard’s decision to push ahead with the fight earlier this month comes after GCP appointed two new directors in a settlement last March with the activist. Since then, the company launched a strategic review, including a potential sale that failed to find a buyer. It has since implemented cost cuts and other measures, including replacing its chief executive officer.

The company has urged investors to support its nominees. It said if two new directors are elected, that would be mean that six of 10 board members would have joined in the past three years.

GCP said Tuesday it remains focused on creating value for all shareholders and to manage through the Covid-19 pandemic.

“GCP’s board and management team have articulated a clear strategy to enhance performance at GCP and are successfully executing against that plan, as demonstrated by the company’s recent business momentum and operating performance, including strong expected first quarter 2020 results,” it said.

It previously said it expects first quarter year-over-year earnings per share to grow 29% and margin expansion of roughly 17%.

Still, the company’s shares have fallen roughly 21% year to date, giving it a market value of roughly $1.3 billion.

Winter and Millstone said the board has not been held accountable for the failure of the strategic review, which they called a “hasty, ill-conceived and poorly managed sale process conducted without the support of its shareholders.”

While they viewed some of the company’s efforts like moving to destagger the board as positive, they said it was too late and overshadowed by excessive executive compensation. The company also adopted a poison pill that wasn’t approved by shareholders and is evidence of board entrenchment, they said.

©2020 Bloomberg L.P.

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