Hedge fund says it will seek four seats on Sensient board (updated)

17:35 PM | February 19, 2014 | Vincent Valk

Hedge fund FrontFour Capital (New York) said 19 February that it would nominate four directors for Sensient Technologies’ board, raising the possibility of a proxy battle. FrontFour also sent a letter to Sensient investors noting “serious concerns about the company's continued operational shortfalls in the flavors & fragrances (F&F) division, suboptimal capital structure resulting in poor returns on equity, and invested capital and significant corporate governance shortfalls.” FrontFour has not yet filed a proxy statement with SEC with regard to Sensient's annual meeting. FrontFour says it owns 733,435 Sensient shares, a roughly 1.5% stake. Sensient shares rose 1.2% on 19 February, closing at $50.99/share.

In the letter to shareholders, FrontFour also critiques “the quick ascension of chairman Ken Manning's son Paul Manning to the CEO position despite lacking any meaningful outside experience within the F&F segment.” Paul Manning had been president of the company’s colors business, and then COO, prior to assuming the CEO role. The letter also censures Sensient’s capital spending, which the hedge fund notes rose from $47.7 million in 2009 to $104.2 million last year, and the company’s overall cost structure.

Sensient is reviewing FrontFour’s letter and “will digest it,” CEO Paul Manning tells CW. Generally, Manning says he has met with investors who have raised questions related to the F&F segment and the company’s return on invested capital. Performance improvement in these areas are priorities for the company, Manning adds.

FrontFour’s other chemical investments as of 30 December 2013 include Chemtura, Dow Chemical, Ferro, and W.R. Grace, according to its quarterly SEC filings. The value of each of its chemical holdings generally ranges from $10-$30 million. FrontFour’s overall equity investments totaled $383 million at year-end, according the filing.

FrontFour previously joined with Jeffry Quinn, former CEO of Solutia, in nominating a dissident slate of directors for Ferro's board last year. Ferro and FrontFour eventually settled on a compromise slate, under which Ferro itself nominated two of the three members of FrontFour's original slate, including Quinn.