Activist investment firm Ancora Holdings Group LLC on Tuesday publicly criticized H.B. Fuller’s Board of Directors for rejecting its cash offer to buy the global pureplay adhesives leader’s Building Adhesive Solutions (BAS) business, and called on the board to consider various other options, including a potential sale of the entire company.
“We understand that directors can fall into a malaise when they are insulated by defensive governance and a classified boardroom structure,” wrote Fredrick DiSanto, chairman and CEO of Ancora Holdings Group LLC, and James Chadwick, president of Ancora Alternatives LLC, in an Oct. 27 letter sent to H.B. Fuller board members.
“But it is not too late for you to turn the page and pursue a value-enhancing outcome that earns applause from shareholders,” they noted. “After all, more than anything else, that should be your goal as fiduciaries.”
H.B. Fuller earlier this month rejected a second and higher offer from Ancora to take over BAS, saying in an Oct. 19 statement that “the modest offer price increase does not adequately capture the value of the BAS business, including its organic growth momentum,” as well as the “significant role” BAS plays within H.B. Fuller’s broader platform.
In September, Ancora had increased its proposed price for BAS to between $1.2 billion and $1.4 billion in cash from its original offer made in August of between $1.1 billion and $1.2 billion.
However, following “a thorough review supported by independent financial and legal advisors,” H.B. Fuller said that its board voted unanimously to reject Ancora’s second “unsolicited, non-binding proposal” to buy BAS.
At the same time, H.B. Fuller said its board continued to evaluate all opportunities to maximize value for all shareholders — Ancora being one such shareholder — and said it would conduct a market check involving select market segments and product lines “that are less integral to its portfolio and strategy, with the intent to use any proceeds towards deleveraging.”
In their letter today, Ancora executives scoffed at that suggestion.
“We would generally view the announcement that you are running a ‘market check for select market segments and product lines’ as a step in the right direction,” they wrote. “However, with this board, it just marks the continuation of an unfortunate trend of doing the very bare minimum to try to appease your shareholders.”
Selling a couple of small non-core assets wouldn’t meaningfully reduce H.B. Fuller’s debt burden, they pointed out, and continuing to take cover under a “classified board structure with the window-dressing of a director refreshment” likewise won’t solve the underlying problems of “an elevated leverage profile, sluggish financial performance, and a depressed valuation.”
The Ancora executives also wrote that their repeated efforts to acquire BAS at a premium valuation representing more than 50 percent of H.B. Fuller’s equity value had been rejected without outreach or engagement from the board.
“Yet the board has offered shareholders no basis to conclude that continued ownership will deliver greater value,” they wrote. “Against this backdrop, the board has not earned the benefit of the doubt in rejecting a premium proposal in favor of another promise of future improvement.”
Ancora said shareholders deserve a process that tests the value of all the company’s businesses and the entire enterprise rather than relying on promises of future performance.
“Despite the board’s months-long unwillingness to engage in substantive discussions with us, we have nonetheless tried to be creative and solution-oriented to help address the company’s dangerously high leverage and years of share price underperformance and mismanagement,” they wrote.
DiSanto and Chadwick also contend that the H.B. Fuller board’s reluctance to embrace an explicit strategic review of all assets had undermined the market’s response to its recent announcement.
“Your message last week was muddled by an apparent resistance to conceding the need for an explicit strategic review of all assets, which is likely why the market shrugged off the news and the company’s shares were down,” they wrote.
Additionally, Ancora pointed to H.B. Fuller’s share-price performance as evidence of what it considers a prolonged failure to create shareholder value, noting that the company’s share price had declined more than 27 percent over the preceding five years and had hovered near its five-year low during the previous month.
Ancora also said the share price had fallen by more than $30 per share, or 38 percent, since Celeste Mastin became CEO of H.B. Fuller in December 2022.
At the same time, the firm questioned the results of Project Quantum Leap, which it said was presented as a transformative initiative intended to create shareholder value in 2025.
“Shareholders have not forgotten that they were promised Project Quantum Leap in 2025,” the executives wrote. “Instead, they are now being asked to take a ‘quantum leap of faith’ that hinges on the ability of an amateurish management team and board to deliver tomorrow the value they have failed to produce today.”
Ancora added that shareholders were being asked to accept additional debt and execution risk while waiting for promised improvements.
The letter also outlined several priorities Ancora thinks H.B. Fuller’s leadership should pursue, including measurable progress on reducing debt, improved corporate governance, avoiding risky transactions, and maintaining a credible investor relations program.
“We have been direct with you from Day 1 about our view that leadership’s best chance at creating value for shareholders is to show concrete traction on deleveraging, establishing 21st-century governance, forgoing risky deals, and maintaining a credible investor relations program,” the executives wrote.
Ancora accused the board of continuing practices it thinks have damaged shareholder value and said the board had lost shareholders’ confidence.
The letter also signaled that Ancora could consider a bid for H.B. Fuller in its entirety, rather than limiting its interest to the BAS segment.
“We will not sit idly by while you continue to seemingly run the company into the ground,” the executives wrote. “We are reserving all our rights as they relate to upcoming deadlines and making a bid for the entirety of H.B. Fuller.”
The firm said other potential buyers may also recognize value in H.B. Fuller’s assets.
“Whether it is us or someone else, we are confident that there are those who see the inherent value in the company’s egregiously mismanaged assets,” the letter stated.
At press time, H.B. Fuller had not yet issued a response to Ancora’s letter.