Ancora Holdings Group LLC is renewing its push to acquire H.B. Fuller Co.’s Building Adhesive Solutions (BAS) segment after H.B. Fuller’s board unanimously rejected Ancora’s unsolicited proposal, setting up a public dispute over the value and future of the business.
Ancora, an H.B. Fuller shareholder, reaffirmed its proposal Aug. 24, criticizing the board for rejecting the offer without first engaging with the investment firm.
“All shareholders of H.B. Fuller should be deeply disappointed by the board’s decision to irrationally reject a highly credible proposal to acquire the company’s BAS segment without any outreach to us,” Ancora said in a statement released Monday.
Ancora said it learned of the rejection through a Bloomberg News request for comment and criticized the board’s response as evidence of what it called “entrenchment.”
H.B. Fuller’s board said it reached its decision after a review supported by independent financial and legal advisers.
In a letter signed by Board Chair Teresa Rasmussen, the company said the proposal “materially undervalues the BAS business, ignores its prospects for future growth and value creation, fails to appreciate the importance of this segment to our leading pure play adhesives platform, and lacks key details needed to demonstrate Ancora’s ability to execute any such transaction.”
Ancora’s proposal values BAS at between $1.1 billion and $1.2 billion, a valuation that H.B. Fuller said is “substantially below precedent transactions” and does not represent the full value of the business.
The company also pointed to recent BAS performance in which the segment delivered 6 percent year-over-year organic growth in the second quarter, and a 10 percent improvement in EBITDA, which H.B. Fuller said demonstrates momentum in the business.
“As key construction end markets recover and benefit from tailwinds such as the data center buildout, we expect BAS to be a significant driver of earnings moving forward,” Rasmussen wrote.
At the same time, the company also said its Project Quantum Leap is expected to increase BAS’s earnings power, and a sale of BAS could create “material operating inefficiencies” because the business shares manufacturing operations with H.B. Fuller’s other businesses at more than 30 plants worldwide.
“Through continued footprint rationalization, we expect a step change in the earnings power of BAS over the near-term as we continue to expand penetration of our leading product lines,” wrote Rasmussen. “A carve out of the BAS business … would result in material operating inefficiencies. After considering tax and other dis-synergies, the benefits of leverage reduction are materially offset by diminished growth, cashflow, and scale.”
But according to Ancora, selling assets is the most viable way for H.B. Fuller to reduce its debt within a reasonable timeframe.
The investment firm pointed to what it described as the company’s weak cash-flow conversion, including a five-year average free-cash-flow conversion rate of 28.1 percent.
“The reality is that the board’s reliance on H.B. Fuller’s cash flow generation to rapidly reduce leverage is simply not credible given the company’s poor free cash flow conversion,” Ancora said.
H.B. Fuller disputed that assessment, saying it has “multiple levers to facilitate rapid deleveraging,” and Rasmussen said the board is confident management can return leverage to its target range of 2.5 times to 3.0 times within two years after completion of the company’s Advanced Medical Solutions transaction.
Ancora also said it could increase its proposal if due diligence showed that a higher offer was warranted and that the acquisition could be completed without a financing contingency. The firm said that it could help H.B. Fuller address its leverage.
But H.B. Fuller said that Ancora’s proposal doesn’t provide enough detail about how it would finance the transaction or operate BAS without continued support from H.B. Fuller.
The board said H.B. Fuller’s immediate focus is completing and integrating the Advanced Medical Solutions acquisition, advancing Project Quantum Leap, and pursuing initiatives aimed at improving commercial and manufacturing performance.
Ancora, meanwhile, criticized H.B. Fuller’s leadership and board, saying the company has delivered negative total shareholder returns over “every relevant period” and has experienced sustained underperformance during CEO Celeste Mastin’s tenure.
“If the board wants to avoid a prolonged public campaign for change, it needs to either install capable leadership or initiate a credible review of strategic alternatives — there is no third path,” Ancora said.
H.B. Fuller said its board remains open to opportunities to increase shareholder value and regularly reviews both the company’s overall portfolio and individual business units.
“We will continue to evaluate the entire company as well as individual business units through this lens,” Rasmussen wrote.
Ancora added that if the H.B. Fuller board’s decisions “ultimately result in continued harm to shareholders, we believe it should be held liable and Ancora will not hesitate to pursue all available legal remedies.”