Small Cap Strategist is published by Crystal Equity Research an independent research resource on small capitalization stocks. Follow along as we discuss the most recent trends in the small-cap sector, investigate interesting companies and pan a few not-so-promising stocks.
month a shareholder group led by two of Rentech’s largest shareholders sent a
letter to the biofuel developer’s board of directors.Rentech (RTK: Nasdaq) is a drift
the group claims. The alternative energy
business has failed.The fertilizer
plant is a bust and the wood pellet project is never going to deliver adequate
return on invested capital.What is more
management is paid too much for the size of Rentech’s operations.The group wants its own slate of nominees in the proxy for director positions.
leadership responded to the letter with a polite promise to consider the
qualifications of the nominees.The
company’s annual meeting is expected later this year.
let’s take a look at the four nominees ourselves.All four have lengthy lists of prior
experience in venture capital and private equity.The have been board members of this company
and that company.However, only one of
the four, Larry Holley, has any operating experience, including a stint at a fertilizer
production plant.He is also the only
one of the four that has an engineering background.
bankers and venture capitalists make excellent board members.They know how to read the financial
statements.They are skilled at calculations
of profitability and returns on investment.They look good sitting around the board room in suits.Unfortunately, financiers can quickly figure
out the odds on someone else’s innovation, but little vision of their own.We could expect this group of nominees to
tell us a great deal about how little merit there is in Rentech’s present game
plan, but not much more.
can also expect this group of nominees to find a number of very clever ways to
direct Rentech resources to the two firms leading this concerned shareholder
Capital and Lone
Star Value Management.Activist shareholder groups typically have little reticence in accepting
consulting fees, director compensation and other creative compensation
arrangements to the benefit of their expertise.
usually shouts loudest when it comes to telling a company’s story.In the most recently reported twelve months Rentech
converted 6.9% of its sales to cash, generating $26.8 million in operating cash
flow.That is below average for a
fertilizer operations, but mighty impressive for a company developing
alternative energy technologies.
leadership may need to sharpen its collective pencil to refine its strategic
plan, not to mention do a better job of executing on its various projects.However, in my opinion, the slate of new
directors offered by these ‘concerned shareholders’ does not appear qualified
to sharpen, refine or otherwise execute on much more than their own special
post we will look more closely at Rentech operations-pulp, pellets and fertilizer.
Neither the author
of the Small
Cap Strategist web log, Crystal Equity
Research nor its affiliates have a beneficial interest in the companies