Axiall Attracts Activist

08/06/2015 8:00 am EST


Kuen (Scott) Chan

Editor, Investing Daily's Real World Investing

This recommended chemical products company could have a takeover in its future, suggests Kuen Chan, contributing editor to The Complete Investor.

That, anyway, could be the message from a recent move by Franklin Resources, a global investment firm with roughly $890 billion in assets under management.

Having over time amassed 4.8 million Axiall Corporation (AXLL) shares—or 6% of the company—Franklin recently filed a 13D form with the SEC, required when a shareholder owning more than 5% of a company intends to be an activist investor.

In its 13D filing, Franklin urged Axiall’s board to perform a comprehensive strategic review of the potential sale of all, or parts, of the company and of Axiall’s cost structure, capital allocation plans, and possible changes in senior management.

It’s unclear whether Franklin, not known as an activist investor, intends to spearhead a campaign itself or is simply encouraging more aggressive institutions to take steps it will follow its past modus operandi.

It may be no coincidence that shortly after the 13D filing, Axiall president and CEO Paul Carrico stepped down and was replaced on an interim basis by executive vice president Timothy Mann.

The official explanation was that Carrico wanted to retire, but the timing and abruptness of his departure before a permanent replacement was named suggests he likely was forced out.

Activists jump in when they believe a flawed corporate strategy has led to a stock underperforming and believe they can enhance shareholder value by forcing a revamping.

Axiall already had planned to sell its small aromatics division, but Franklin obviously saw that step as inadequate.

Franklin and other large shareholders could decide a sale of the entire company would make the most sense for shareholders.

The stock’s recent weakness reflects the overall drop in commodities markets from the mess in Greece and China’s stock market scare. We expect a rebound, and Axiall remains a buy up to $40.

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