A majority of shareholders at Ameron International Corp.’s annual meeting voted last week to separate the functions of the board chairman and chief executive, a proposal supported by a hedge fund that had launched an assault on management.
Though the 56 percent vote fell short of the 80 percent supermajority required to enact the proposal, it provided evidence of support for Barington Capital Group, which recently demanded the bylaw and other changes.
“We will look at it very closely,” said Ameron Chief Executive and Chairman James S. Marlen after the vote. “We will discuss it with the board of directors and governance advocates, look at the performance of other companies and then make a decision sometime this year.”
The action followed a highly critical letter from James Mitarotonda, chairman of New York-based Barington, which says it represents a group that owns 3.7 percent of Ameron’s outstanding stock. The fund has a history of long-term investment in what it describes as “undervalued, small and midcapitalization companies.”
Ameron is a Pasadena company that manufactures pipes for the chemical, energy and other industries. It also owns 50 percent of a steel mill in Rancho Cucamonga and has a division that manufactures building materials in Hawaii.
Ameron last week reported its first quarter profits were down 72 percent to $1.1 million as sales fell 25 percent to $109 million. Shares closed April 1 up 42 cents to $63.31, but that was well off its $130 high reached in mid-2008.
“We are convinced that the company has a vast value potential that is not being realized,” wrote Mitarotonda in the letter. “It is our belief that the company’s stock is undervalued.”
Among the issues cited in the letter, aside from the proposal to split the chief executive and chairmanship posts:
• Ownership of the steel mill and Hawaii building materials business, which Barington feels is outside Ameron’s “core” business.
• Executive compensation, which Mitarotonda maintains is too high. Marlen was paid more than $39 million in cumulative compensation from 2004 to 2008, which is well above the $22 million made by his peers at similar companies.
• Cost containment, which Barington believes should be managed “more aggressively.”
• The sale by executives of millions of dollars of stock. Executives now own about 65,000 shares worth less than $4.4 million despite being awarded $16.4 million in stock grants over the past several years.
Marlen downplayed most of Barington’s criticism in an interview after the meeting, including the criticism of his compensation.
“You can’t take a snapshot of a company, and then make generalizations,” he said. “The stock is down, but you can’t say that everything is bad. We are still doing well, producing terrific cash flow and a pristine balance sheet.”
Brent Thielman, an analyst covering Ameron for D.A. Davidson & Co. in Portland, Ore., said he sees the hedge fund’s criticisms as helpful.
“Generally speaking, these are the types of issues I hear from investors. I think Barrington’s letter will draw more attention to the company and its stock,” said Thielman, who partly on the strength of the Barington letter has upgraded his recommendation from “neutral” to “buy.”
Barington executives would not expand on the criticisms expressed in their letter, nor discuss any future actions.
