Akron, Ohio-based global plastic compounds and resins manufacturer A. Schulman Inc. (NASDAQ: SHLM) said it has retained investment bank Citi (NYSE: C) to assist with a comprehensive strategic review.
The move comes as Japan’s Teijin Ltd (TYO: 3401) agreed to acquire Michigan-based Continental Structural Plastics Holdings Corp. (CSP), a leading automotive composite supplier in North America, from a private equity investment group led by Scott Capital and previously led by Richard L. Scott Investments LLC, for $825 million.
“Citi’s deep understanding of A. Schulman’s businesses, as well as expertise in financial analysis, made them an excellent and impartial partner,” said the company’s chairman Joseph M. Gingo, who was reappointed as the company’s chief executive on August 18, after former CEO Bernard Rzepka (56) was terminated.
Gingo (71) had previously served in this capacity from 2008 through 2014. “We will not speculate on any potential outcomes,” Gingo said, referring to the results of Citi’s recommendations.
The company has a current market capitalization of roughly $793 million, having lost practically 30% of its value since last October. “Like our fellow shareholders, the board is not satisfied with the company’s less-than-optimal performance throughout fiscal 2016,” said Gingo.
Schulman, which was founded in 1928, has grown by acquisition and completed 11 deals in the last six years, spending $1.4 billion for these companies. The largest was its $800 million acquisition of Citadel Plastics in 2015, a few months after Rzepka had taken over as CEO.
Ironically, the price paid to acquire Citadel is about the same as Schulman’s current total market value.
“Unexpected problems at Citadel’s Lucent Polymers unit proved to be the first falling domino that led to Rzepka’s ouster,” according to trade publication Plastics News.
However, some industry experts have speculated that Schulman’s current challenges might also be the result of its excessive reliance on the use of recycled resins, while lower oil prices have lowered prices for raw materials such as virgin resin.
According to BCC Research analyst Charles Forman, the compounding of plastic resins is the addition of other materials to “neat” resins in order to add desirable properties or to make them more processable.
Three types of companies conduct the operation: resin producers; plastics processors (such as injection and blow molders, thermoformers, extruders and film/sheet producers); and independent compounders like A. Schulman—companies whose business is making plastic compounds and masterbatches, not resins or molded plastics products, Forman says.
Customer demand for high-performance compounds continues to grow, especially in the automotive as well as electrical and electronics markets, according to BCC, which expects compounding by processors to grow faster than that by producers or independent compounders.
With approximately 80% of its net sales in markets outside of the United States, Schulman has a strong application knowledge, supported by a global manufacturing organization to serve a wide range of markets. It employs 4,900 people and has 57 manufacturing facilities globally.
The company’s customers span a wide range of markets such as aerospace, automotive, energy, military & defense, packaging, mobility, building & construction, electronics & electrical, agriculture, personal care & hygiene, sports, leisure & home, custom services and others.
Schulman is a leading global supplier of Quantum AMC carbon fiber advanced molding compounds for high-performance automobiles, such as the Dodge Viper and Lamborghini Sesto Elemento (photo above).
Schulman reported net sales of approximately $2.4 billion for the fiscal year ended August 31, 2015.