Elementis shares surge as Franklin sale demand rebuffed

Shares in UK chemicals group Elementis on Wednesday surged as the company rejected a demand by major shareholder Franklin Mutual Advisers to sell the company.

Franklin has held a 9.8% of Elementis on behalf of clients since December 2020, and in an open letter said the company's "stagnant" share price was "unacceptable" to shareholders and recent "value destructive acquisitions" had undermined confidence in management.

Elementis shares rose more than 12%, taking it to the top of the FTSE 250 index.

"The board has held a series of discussions with Franklin to understand their view and consider their request. After careful consideration, with the support of its advisors, the board does not consider an immediate sale of the company to be in the best interests of its shareholders and is issuing this announcement to clarify its response," Elementis said in a statement to the London Stock Exchange.

The company said it continued to make progress towards its medium-term goal of 17% adjusted operating margin and its target of below 1.5 times net debt and core profit.

However, Franklin said that Elementis "is not of a sufficient size to accomplish its targets", according to a letter signed by portfolio managers Steve Raineri and Chris Meeker.

It also said the company's capital allocation decisions "have contributed to an extremely disappointing degradation in the share price".

"Specifically, the company spent $860m to acquire SummitReheis and Mondo Minerals in 2017 and 2018, respectively. Subsequently, the company has incurred over $200m in impairments associated with the Mondo Minerals acquisition. Since 2016, the stock price has declined by more than 50% and the company's current market value is less than the amount spent to acquire these two companies."

"This is a shocking amount of shareholder value destruction."

Reporting by Frank Prenesti for Sharecast.com