Chemical maker Ferro may sell more assets after rejecting A. Schulman’s buyout offer

Ferro Corp., a producer of specialty chemicals, announced on Tuesday the company's assets that do not generate returns are being redeployed, divested or curtailed.

This comes a day after Ferro rejected a $855 million takeover bid from plastic compounds and resins supplier A. Schulman.

"We have tremendous respect for Ferro and its people," said Joseph M. Gingo, chairman, president and CEO of A. Schulman, in a statement. "However, cash flow is required not only for the restructuring efforts already publicly identified by Ferro, but also for growth, the capacity to be opportunistic in the marketplace, and the ability to create value for shareholders." 

Over the past five years, A. Schulman has generated more than $400 million in free cash flow. By comparison, Ferro has generated approximately $60 million during that same period.

A. Schulman expressed its "strong intent" in pursuing the deal in a letter to Ferro on Feb. 13, 2013. Ferro's board rejected A. Schulman's offer and expressed their belief that the company should remain independent. A. Schulman first contacted Ferro in November 2012.

Ferro didn't conduct a question and answer session on the Q4 earnings call held on March 4, but Peter Thomas, interim CEO and president of Ferro, did briefly mention A. Schulman's proposal on the conference call.

"As I'm sure you are aware, yesterday, Ferro confirmed that its board of directors had previously received and rejected an unsolicited proposal from A. Schulman to acquire all the outstanding shares of Ferro common stock for $6.50 per share in cash and stock," Thomas said. "Ferro's board, in consultation with financial and legal advisers, unanimously determined that the A. Schulman proposal is not in the best interest of shareholders and that continued execution of the company's value creation strategy that we outlined today will deliver greater value to our shareholders."

The company plans to reduce operating costs by more than $50 million over the next two years. Each of Ferro's product lines is being reviewed and analyzed to determine its current and future potential to create value and generate cash.

Ferro, a supplier of a range of performance chemicals and materials to the building and renovation, automotive, packaging, consumer and industrial markets, reported a net loss of $374 million last year. The company said its six operating segments reported lower sales in the latest fourth quarter compared to the prior year.

Ferro said weakness in Europe contributed to the reduction in gross profit, particularly for the performance coatings, polymer additives and color and glass performance materials segments.

Thomas said on the call the company plans to streamline its core operations in order to reduce operating costs.

As of January, Ferro has moved from eight business units to five business units and from three manufacturing organizations down to two: performance materials and performance chemicals. The company's traditional coatings product lines will roll up under performance materials, while the plastics and polymer additives product offerings will be placed in performance chemicals, Thomas  said.

"We believe our product categories naturally fit into these two operational groups, allowing us to eliminate redundancies and reduce the cost to run and report product lines as businesses," Thomas said. "We intend to leverage our core strengths to cultivate business opportunities in new geographies and higher-value applications in target markets."

The company's specialty plastics group includes filled and reinforced plastics, and plastic colorants and additives that enhance performance properties of plastic products and add special effects in appliance, automotive, agricultural, household furnishing and packaging applications.