Starboard Takes Aim At Calgon Carbon Corporation (CCC)

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Starboard has revealed recent activist activity on Calgon Carbon Corporation (NYSE:CCC) in a filing with the Securities and Exchange Commission today. The firm provided details on a letter it sent to the company and the steps it thinks should be taken to increase the company’s stock price.

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Starboard pushes for more from Calgon Carbon

Currently Staboard owns 9.7% of Calgon Carbon. In its filing with the SEC, the firm says Calgon Carbon Corporation (NYSE:CCC)’s recent margin improvements and $50 million accelerated share buyback is a step in the right direction, there is more that could be done to improve value for shareholders. The firm is pushing the company to begin new margin improvement initiatives, optimize its capital allocation structure and consider “tax-advantaged corporate structures.”

In addition to the letter, Starboard also provided a presentation highlighting the options available to Calgon Carbon Corporation (NYSE:CCC). The firm said it wanted to provide these options ahead of the company’s analyst meeting later this week.

Comparing Calgon Carbon to Norit

ValueWalk has obtained a copy of Starboard’s letter. The firm points to Norit N.V. as an example of where Calgon’s EBITDA margins should be. Norit was Calgon’s closest competitor before the early part of 2012. That’s when Norit’s profitability was undermined by “the deterioration of the air purification end market,” which resulted in “a substantial reduction in utilized capacity.”

Starboard estimates that Norit was operating at about a 23% EBITDA margin, compared to Calgon Carbon Corporation (NYSE:CCC)’s LTM EBITDA margin of about 15% and 19.6% EBITDA margin in the second quarter of this year. The firm notes that Calgon’s margin received a positive benefit from “non-recurring factors” and will likely return to lower levels in the next few quarters. The firm believes that Calgon’s further cost cuts will improve margins to between 18% and 20% with the company’s current revenue levels, although it believes Calgon can meet or exceed Norit’s 23% margin.

Improving Calgon’s capital allocation

The firm also suggests that Calgon Carbon Corporation (NYSE:CCC) should do more than the share buybacks it is already planning. It believes the company can improve value for shareholders by returning capital to them and also improving its operating results. Starboard says Calgon is “under-levered and overcapitalized” and again draws comparisons to Norit, which has a “more volatile business than Calgon”

The firm suggests Calgon Carbon Corporation (NYSE:CCC) should use “available funds and borrowings” to buy back $150 million to $200 million of its “currently undervalued stock as soon as possible.” Starboard suggests a Dutch tender offer and open market purchases.

Improving Calgon’s corporate structure

And finally, Starboard suggests Calgon Carbon Corporation (NYSE:CCC) should work to improve its tax efficiency by changing its corporate structure. It suggests listing the company’s U.S. activated carbon assets in a publicly traded Master Limited Partnership while retaining ownership of the General Partner.

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