Voss advocates strategic review at Griffon. Value building opportunities may arise

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Company: Griffon (GFF)

Business: Griffon operates through two segments. Consumer and Professional Products (“CPP”) conducts its activities through AMES. Founded in 1774, AMES is a leading North American manufacturer and global supplier of branded professional and consumer tools and products for home storage and organization, landscaping. and enhance the outdoor lifestyle. CPP sells products globally through a portfolio of leading brands including True Temper, AMES and ClosetMaid. Household and Building Products (“HBP”) conducts its operations through Clopay. Founded in 1964, Clopay is the largest manufacturer and marketer of steel garage doors and roller shutters in North America. Residential and commercial garage doors are sold through professional dealers and leading family-centric retail chains throughout North America under the Clopay, Ideal, and Holmes brands. Steel grilles and roller shutters designed for commercial, industrial, institutional and retail use are sold under the CornellCookson brand. The CPP enterprise has about $1.2 billion in annual sales and $115 million in EBITDA, and the HBP business has about $1 billion in annual sales and an EBITDA of $181 million.

Stock market value: $1.8 billion ($31.75 per share)

Activist: Voss Capital

Ownership rate: 5.17%

Average costs: $25.91

Activist comments: Voss is a Houston-based hedge fund that focuses on untracked special situations. They are not traditional activists but have successfully used activism as a tool in the past.

What is happening?

Above August 15th, Voss expressed support for Griffon’s May 2022 announcement that the board has begun to consider strategic alternatives, including possible sale, merger, divestment, refinancing capital or other strategic transactions. Earlier, at the company’s annual meeting, Voss started a proxy battle and successfully won a board seat for HC Charles Diao, one of Voss’ two director candidates.

Behind the scene

Voss first reported keeping Griffon in 3rd quarter of 2021 filing 13F. Above November 23, 2021before ownership exceeded 5%, it nominated three directors for election to the board and then reduced to two directors.

During their proxy battle, the company released letters and presentations detailing their belief that Griffon had poor corporate governance and excessive executive compensation, and that the company should Start looking at the strategy. In a presentation in January 2022, it stated that Griffon shares could be worth $50/share (currently as low as $30) through the implementation of a plan that includes ( i) sell Defense Electronics, (ii) explore alternatives to Home and Building Products, (iii) use cash to reduce debt and pay special dividends, (iv) norms reasonable costs for the business and (v) improved margins in the Consumer Segment. Voss also criticized Griffon’s M&A strategy, highlighting it in particular do not approve the acquisition of the company by Hunter Fan for $845 million from MidOcean Partners. Finally, at Annual Meeting 2022shareholders elected one of Voss’ directorial candidates, HC Charles Diao, to the board of directors where he currently serves as director.

Six months on: Voss has now increased their ownership from 2.3% to 5.2% today. In its 13D filing, the company said that it was “delighted by Issuer’s announcement in May 2022 that the Board of Directors has initiated a process to consider a range of strategic alternatives.” to maximize shareholder value including selling, merging, divesting, refinancing or other strategic transactions.” Voss later noted that it increased its investment based on the hope that strategic consideration will result in a transaction that will unlock value.

So that’s the hard part. Voss launched a proxy war, won a board seat, and now it’s endorsing a review of the company’s strategy. Since Griffon sold its Defense Electronics business at the start of this year for $330 million, the strategic focus is likely to be on the potential sale of the Building and Home Products business.

This is not the first time Voss has had a strategy thesis at a portfolio firm. In their 13D on Benefytt Technology filed in December 2019they highlight strategic opportunities at the company and the active M&A environment in that space – Benefett Technologies was acquired by Madison Dearborn Partners in August 2020. In addition, in January 2020Voss filed for 13D on Rosetta Stone without the Section 4 language, but the company was acquired by Cambium Learning on October 15, 2020.

There are several reasons to expect that some strategic deals are likely here: (a) Voss’ presence in the boardroom, (b) the company’s sale of its Power business. Defense Department after Voss backed it, and (c) the company announced that it was pursuing an additional strategic review. Furthermore, the next annual general meeting of shareholders will take place in February 2023 and for the first time Griffon will have a majority of directors (9 out of 14) participating in the election as they recently started the process. declassify the board of directors. So if the company doesn’t respond to Voss’ proposals, it could launch another proxy battle for majority control this time.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder performance, and he is the founder and portfolio manager of 13D Activity Fund, a mutual fund. invest in a portfolio of 13D activists. Griffon is holding in the fund. Squire is also the creator of the AESG™ portfolio, an active investment style that focuses on improving the ESG practices of portfolio companies.

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