Elementis plc (LSE:ELM), the FTSE 250-listed speciality chemicals company, has been told to put itself up for sale by major investor Franklin Mutual Advisers immediately.
The US firm, which is part of the group known as Franklin Templeton, published an open letter on Wednesday saying Elementis "should immediately and publicly announce a sale process".
Directors of the 179-year old group, having they have held various talks with Franklin "to understand their view", said in a statement that they think such a sale is "not [...] in the best interests of its shareholders".
Franklin, which first invested in Elementis in December 2020, said it was initially impressed with the company's "healthy" market position in its personal care and coatings businesses, "strong" gross margins and the fact that the stock that had declined more than 50% since 2016, giving it "an inexpensive valuation relative to history and peers [and] the potential for upside in earnings from a cyclical recovery".
But the US firm said the group's "capital allocation decisions have contributed to an extremely disappointing degradation in the share price", including the US$860 million acquisition of SummitReheis and Mondo Minerals in 2017 and 2018, which has seen more than US$200 million of impairments incurred.
The same 50% decline since 2016 in the stock price that first attracted Franklin has resulted in Elementis' market value falling to below the amount spent on the acquisitions.
The Elementis board said it "agrees with Franklin's comments on [its] attractive assets" and potential for upside in a cyclical recovery alongside substantial operational improvement initiatives.
After selling off the Chromium business in January, the directors said Elementis is now a "pure play specialty chemicals business focused on adding value by making our customers' formulations look, feel, and perform better", and a "higher growth, higher margin, less cyclical and less carbon intensive business".
The board has scheduled a capital markets day for 14 November to go into deeper detail with analysts and investors.