The world’s largest chemical distributor is currently being attacked by two activist funds.
(Photo: Brenntag AG)
Dusseldorf The chemicals dealer Brenntag, which has been harassed by activist investors, is returning more than one billion euros of capital to its shareholders. The Dax group announced two steps on Wednesday: The dividend for 2022 is to increase from 1.45 to 2 euros per share. The company is also planning a share buyback with a volume of EUR 750 million.
On the one hand, Brenntag is reacting to the successful course of business in the past year. Operating profit (Ebitda) soared by 27 percent to 1.8 billion euros, sales by 28 percent to 19.2 billion euros. The strong free cash flow of more than one billion euros forms the financial basis for the dividend increase and the share buyback.
With both announcements, Brenntag also wants to counteract the pressure from investors. The world’s largest chemical distributor is currently being attacked by two activist hedge funds: the American Engine Capital holds one percent of the shares, the British Primestone Capital two percent. Both are demanding that the board of directors separate the trade in specialty chemical products from bulk chemical distribution.
Brenntag CEO does not expect normalization until the second half of the year
Brenntag shares were up slightly in early trading on Wednesday morning. The forecast for business in 2023 is likely to be disappointing on the stock exchange. At best, the group expects stagnant profits, but a decline of up to ten percent is also possible.
“The overall geopolitical, macroeconomic and business environment will continue to be challenging and result in continued uncertainty about the global economy’s growth prospects,” the company said. In the course of the year, however, a gradual normalization of the situation is expected.
Because of the uncertainties, the Group has chosen a broader forecast range. If the economy stabilizes faster than expected, profits could also remain at the record level of 1.8 billion euros achieved in 2022. However, Brenntag wants to introduce a new control parameter for profit: Instead of Ebitda, management will in future be based on Ebita.
The Brenntag boss has reorganized the company.
(Photo: Brenntag)
The difference: EBITA includes the “normal” depreciation on property, plant and equipment, but not depreciation on the values of acquired companies. Brenntag has traditionally grown strongly through acquisitions of small and medium-sized chemical dealers around the world. The company wants to expand this course and has doubled its budget for acquisitions to up to 500 million euros.
In autumn 2022, the group even negotiated the purchase of American competitor Univar, which Brenntag estimated would have cost more than eight billion euros. The talks were stopped towards the end of the year. In addition to customer concerns about the resulting market power, this was also the result of massive criticism from Brenntag shareholders.
Investors demand split
The two activist funds at Brenntag rub shoulders with the group structure: CEO Christian Kohlpaintner had reorganized the company and created independent units for bulk business and trading in special products. The business models differ significantly.
The hedge funds therefore see potential for value appreciation if both businesses are transferred to separate publicly traded companies. Brenntag does not comment specifically on the demands. However, the management makes it clear that it wants to achieve an increase in value with the strategy it has adopted.
In addition, Brenntag is now wooing shareholders with the announced share buyback program. Based on a price of EUR 71.58 per share, the volume of EUR 750 million corresponds to around 6.8 percent of the share capital. Brenntag wants to start the purchases in March and complete them over a period of up to twelve months.
More: Activist US funds are increasing the pressure again