Wynnefield Capital And The Diworsification Of Omega Protein

Wynnefield Capital And The Diworsification Of Omega Protein by Stock Pucker

Omega Protein, the developer of nutritional products for both animals and humans, has an activist investor, Wynnefield Capital – the small activist fund sent a letter [full letter here]

In the letter to the board, Wynnefield Capital Management said that it has “never observed a more glaring case of ‘diworsification’ than the risky and unsuccessful efforts of Omega Protein Corporation to enter the human nutrition field”. The hedge fund believes that the company’s actions have “flushed away” $150 million in shareholder value through a tragic and risky misallocation of shareholder equity over the years.

The activist investor urged the company to immediately hire a reputable investment bank to explore all strategic alternatives to maximize shareholder value, including the sale of the company or its assets. If it does not, the hedge fund hinted that it was willing to engage in a costly proxy battle that will ultimately oust the board of directors over two years – a lengthy process given the classified structure of the board of directors.

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While the company’s stock is trading up nearly 60% year to date, the stock is only coming back to highs that it has already reached several times in the past. Revenue has been improving modestly over the past few years, but gross margins have remained stagnant at around 17% and net income has failed to rise alongside revenue. Still, the price and top-line performance could make the takeover a tough sell for some shareholders.

Wynnefield owns just over 7% of the company’s common stock and has a long track record of successfully pushing for strategic changes at publicly traded companies.