Activists clash with leading German chemical group over board vote
The tussle between proxy agency-backed PrimeStone and Engine and Brenntag over strategy and governance intensifies
Activist investors have clashed with Germany’s Brenntag over the timing of the chemical group’s annual shareholder meeting, escalating an already acrimonious battle over strategy and governance.
Shareholders in Essen-based Brenntag are scheduled to vote in two new supervisory board members to replace those whose terms expire this year, including chair Doreen Nowotne, at its annual meeting on June 15.
Activist investors PrimeStone Capital and Engine Capital, who own 3 per cent of Brenntag’s shares between them, have openly rejected the candidates proposed by the company, including Richard Ridinger, who has been on the board since 2020 and is Nowotne’s designated successor as chair.
Instead, they have put forward Geoff Wild, a chemicals industry veteran, and former Goldman Sachs banker Joanna Dziubak, as their own external candidates. In a rare move, both leading proxy advisers ISS and Glass Lewis endorsed the activists’ candidates, recommending shareholders not to support the company-backed candidates.
The tussle over the board comes on top of the activists’ demands to hive off what they see as Brenntag’s non-core operations.
The Essen-based group, which reported €19.4bn in sales last year, is the world’s largest distributor of chemicals, with the main business division generating 55 per cent of its operating profit. A separate, smaller unit produces speciality chemicals such as acetone and phosphoric acid.
Both PrimeStone and Engine have called for a separation of those activities, arguing they generated little if any synergies and added to the complexity of the corporate structure.
“Brenntag has been underperforming consistently over more than a decade,” PrimeStone argued in a recent presentation, adding the company had “low growth, poor cost control, questionable M&A, lack of direction”. The investor estimated that Brenntag’s total shareholder return over the past five years was 40 per cent below peers, adding that this destroyed €2.5bn “in the past two years alone”.
Chief executive Christian Kohlpaintner, in charge since 2020, has launched a restructuring programme, separating the production of chemicals and the distribution. People familiar with his thoughts say he is open for a full split in the future but was concerned that a rushed split could generate two stunted entities.
Brenntag has €12bn in market capitalisation. Its shares are up 3.3 per cent over the past year, compared to a 10 per cent increase in the wider Dax.
ISS in its proxy report backed the claims, calling Brenntag’s “a story of missed opportunities and potential”, partly because of “management actions that directly destroyed shareholder value”.
As a compromise over the board composition, Engine Capital on Monday suggested to enlarge the supervisory board by two members to a total of eight to accommodate both the company’s candidates as well as those backed by the activists.
Under German law, such a motion would require a change in the annual meeting’s agenda, which could only be implemented if it was suspended by a few weeks.
“Brenntag remains unwilling to engage and seems intent on extending a costly and unnecessary election contest to maintain the status quo,” Engine Capital said in a statement on Monday.
Primestone’s managing partner, Franck Falezan, said he had nothing personal against the company-backed board members, noting that “a more diverse and fresher board is needed”. He added that Brenntag had the smallest supervisory board of any German blue-chip company in the Dax 40 index.
However, he accused the current board of being “totally out of touch with the reality of the performance of the business” and said it made “very big mistakes” with regard to a lack of cost control as well as an ill-fated attempt to take over US rival Univar Solutions.
Brenntag said it “strongly disagrees” with the recommendations by ISS and Glass Lewis, and repeated its advise to shareholders to vote in favour of the management. Brenntag told the Financial Times it would not postpone its annual meeting, pointing to the legal requirement to hold it six months after the end of the fiscal year.
Any postponement would also delay dividend payments to shareholders, and would not be in their interest, company said.
Flossbach von Storch, a large German asset manager and one of Brenntag’s top shareholders with more than a 5 per cent stake, said it was backing the company-backed candidates, adding that a postponement of the meeting would squander time.
