Issues Letter to Stockholders to Outline the
Case for Meaningful Change Atop Trecora Following Years of
Stagnation and Underperformance
Ortelius Advisors, L.P., which collectively with its affiliates
is the largest stockholder of Trecora Resources (NYSE: TREC), today
issued the following open letter to fellow stockholders.
***
February 7, 2022
Fellow Stockholders,
Ortelius Advisors, L.P. (together with its affiliates,
"Ortelius," “we,” or “us”) owns approximately 11.3% of the
outstanding common stock of Trecora Resources (“Trecora” or the
“Company”), making us the Company’s largest stockholder.1 While we
believe that Trecora has significant upside potential based on its
top-quality assets, favorable industry dynamics, and considerable
free cash flow capabilities, Ortelius is deeply concerned by the
Company’s chronic undervaluation and disappointing performance.
Trecora’s stock price returns, on an absolute basis and when
compared to the broader market, relevant indices and peers and over
multiple time periods, are consistently abysmal.
Trecora’s specialty petrochemicals segment, representing roughly
85% of the Company’s total revenues, is a leader in the
manufacturing of high purity hydrocarbons such as pentane and
hexane, which are used in the production of polyethylene,
polypropylene, polyurethane foams, expandable polystyrene, and
packaging. The Company‘s other business units, accounting for the
remainder of its sales, produce specialty waxes and provide custom
processing services.
Trecora’s primary operations, as one of two producers in the
U.S., supply approximately two-thirds of the market. Customer
contracts are typically locked up for multi-year periods, demand is
price inelastic, and roughly 65% of revenues are cost-plus,
generating durable and relatively steady EBITDA. In addition, the
Company possesses a sustainable, competitive strategic advantage
that includes differentiated products, superior customer service,
high barriers to entry, and significant switching costs.
Despite Trecora’s numerous strengths, first-class facilities,
and excess capacity, unit sales have stagnated for years, while
capital has been grossly misallocated. In 2014, the Board of
Directors (the “Board”) approved the $73 million acquisition of the
Company’s specialty waxes and custom processing businesses. From
2015 to 2018, the Board approved another $115 million in
growth-oriented capital expenditures. Regrettably, the combined
$188 million in investments, which amount to roughly 95% of
Trecora’s current market capitalization, has had no discernible
positive impact on the Company’s financials.
In particular, the Board directed substantial resources to three
major projects: the D Train, an Advanced Reformer, and a
Hydrogenation/Distillation unit. Accordingly, in a November 2017
presentation, management projected that EBITDA would grow from $31
million in 2016 to $63 million in 2022. A little more than a year
later, in March 2019, management conceded that its multi-year
investment cycle had “not delivered results.” Unfortunately, EBITDA
remains below 2016 levels today.
During the past five years, Trecora’s stock price has dropped
41.7%, underperforming benchmark averages by a staggering 136.8%.
Below is an assessment of the Company’s returns under the current
regime:
Total Stockholder Returns2
1-Year
(12/31/20- 12/31/21)
3-Year
(12/31/18- 12/31/21)
5-Year
(12/31/16- 12/31/21)
Trecora
15.6%
3.6%
-41.7%
Peer Group3
38.8%
58.2%
31.3%
Dow Jones U.S. Small Cap Specialty
Chemicals Index
48.0%
106.0%
114.6%
S&P Supercomposite Specialty Chemicals
Index
27.7%
75.8%
106.0%
Russell 3000 Index
25.6%
99.0%
128.3%
Following years of disappointing results related to governance,
strategy, capital structure, investment allocation, operations,
stockholder returns, and other matters, we see no reason for
confidence in the Board’s decision-making abilities. Consequently,
Ortelius firmly believes that incremental change – such as adding
one or two new directors to the Board – is woefully insufficient to
reverse a culture that lacks accountability. Therefore, we are
nominating six highly qualified, independent director candidates
for election to the Board at the upcoming Annual Meeting of
Stockholders in 2022.
Ortelius believes there are multiple paths to building and
unlocking intrinsic value over the near- and long-term, including
organic growth, corporate finance solutions, and strategic
alternatives. We look forward to earning your support for our slate
in the weeks and months to come.
Peter DeSorcy Managing Member Ortelius Advisors, L.P.
The Ortelius
Nominees
Shawn Abrams
We believe Shawn Abrams’ 35-year track record successfully
building and improving global businesses in the chemicals industry
sector makes him an ideal director candidate for Trecora’s
Board. Mr. Abrams has significant private equity and corporate
board experience, currently serving on the boards of PQ Corp.,
Savillex, LLC, Smart Chemicals LLC, and CCR Specialty Chemicals,
LLC. Most recently, Mr. Abrams has been active in private equity
investments in the chemicals and materials industry following a
career with Evonik Industries AG and W.R. Grace. Mr. Abrams has led
strategy development, organizational change, and acquisition
efforts at various companies and divisions, successfully guiding
businesses through evolving economic and market cycles.
If elected, Mr. Abrams would bring invaluable
operational and strategic positioning experience to Trecora’s
Board.
David Johnson
We believe David Johnson’s extensive investment management
expertise and governance experience make him an ideal director
candidate for Trecora’s Board. Prior to serving as the Chief
Investment Officer and Managing Partner of Caligan Partners LP, Mr.
Johnson was a Managing Director at The Carlyle Group for nearly a
decade. At Carlyle, Mr. Johnson was involved in many of the firm’s
strategic initiatives and sat on investment committees for a number
of different funds that invested in both equity and credit. During
his time as a Vice President in the Principal Investments division
of Morgan Stanley, Mr. Johnson served as a director of SeaChange
Maritime Limited, and an observer to the boards of Grifols, S.A.,
All Star Gas, Viatel Holding (Bermuda), Impsat Fiber Networks, and
Logix Communications. He has served as an independent director at
Liquidia Corporation since April 2021. If
elected, Mr. Johnson’s insights into financial strategy and
organizational and business development would be invaluable to
Trecora’s Board.
Michael Lefenfeld
We believe Michael Lefenfeld’s leadership experience as an
innovation-focused chemicals business founder and executive make
him an ideal director candidate for Trecora’s Board. For the
past four years, Mr. Lefenfeld has served as a director, President
and Chief Executive Officer of Cyanco, a chemical producer and
distributor. Mr. Lefenfeld has a strong track record of unlocking
top-line growth and profitability through organic and inorganic
pathways and has successfully reimagined forgotten technologies and
processes to create step-change advances in today’s industries.
Prior to co-founding SiGNa Chemistry, Inc. and serving as its Chief
Executive Officer and President, Mr. Lefenfeld won numerous
chemistry and technological awards, including Inc. Magazine's Top
30 Entrepreneurs Under 30. His work has led to more than 45 patents
and patent applications with more than 35 licensed or in active
use. If elected, Mr. Lefenfeld’s expertise
reinvigorating mature and stagnant businesses, developing
sustainable business models, and re-engineering ineffective
workflows would be invaluable to Trecora’s Board.
Ted Pettijohn, PhD
We believe Ted Pettijohn, PhD’s 30-plus years of experience
in the chemicals and petrochemical industries make him an ideal
director candidate for Trecora’s Board. Prior to serving as the
President of Arcanum Infrastructure LLC and Raven Butene-1, LLC,
Dr. Pettijohn worked for nearly two decades at Evonik Corporation,
where he was responsible for all growth activities (inorganic and
organic) of Evonik in North America, including launching and
managing the Evonik Oil & Gas Group that supplies chemicals and
plastics to the upstream and midstream markets. Dr. Pettijohn
earned a PhD in Inorganic/Organometallic Chemistry from The
University of Texas at Austin and has more than 50 patents, most of
them relating to petrochemical catalysts. If
elected, Dr. Pettijohn’s significant knowledge of the chemicals
industry and deep understanding of its key underlying concepts
would be invaluable to Trecora’s Board.
Ivona Smith
We believe Ivona Smith’s extensive audit, risk, and
restructuring advisory experience would make her an ideal director
candidate for Trecora’s Board. Ms. Smith currently serves as an
independent director for private and public companies, including
Rayonier Advanced Materials Inc. (NYSE: RYAM), where she also sits
on the Audit Committee and Finance & Strategy Committee. Prior
to serving as the trustee of various litigation and liquidation
trusts at Drivetrain LLC, Ms. Smith co-founded Restoration Capital
Management LLC, an SEC-registered investment advisory firm with a
focus on investing in special situations. At Restoration Capital,
Ms. Smith participated in all aspects of the business, including
portfolio management, risk management, employee management,
marketing, and client relations. If elected,
Ms. Smith’s 20 years of experience investing in and advising
companies undergoing operational or financial restructurings would
be invaluable to Trecora’s Board.
Christine Staples
We believe Christine Staples’ vast experience in the
chemicals, water, and energy markets as a C-suite executive would
make her an ideal director candidate for Trecora’s Board. Ms.
Staples currently serves as Chief Executive Officer of BSpoke
Consulting, an advisory firm she founded that helps industrial
clients implement segmented sales strategies, build global
marketing plans, and re-frame sustainable operating models. Prior
to serving as Chief Executive Officer of G2O Technologies, a water
technologies company, and as Executive Vice President of Buckman
International’s Water Treatment division, Ms. Staples served in
positions of increasing seniority at Ecolab (NYSE: ECL) for 20
years. Ms. Staples possesses deep knowledge of organic and
inorganic growth strategies, global sales and marketing tactics,
operational workflows, and M&A. In addition to her strategic
skills, she has hands-on experience with executive pay and
performance, succession planning, talent management, risk
management, and performance metrics. If
elected, Ms. Staples' experience leading large-scale sales and
marketing efforts and organizational changes would be invaluable to
Trecora’s Board.
***
About Ortelius Advisors, L.P.
Ortelius is a research-intensive, fundamental-based,
activist-oriented alternative investment management firm focused on
event-driven opportunities. Founded in 2015 by Peter DeSorcy and
H.R.H. Prince Pavlos, the asset manager is based in New York
City.
Certain Information Concerning the
Participants
Ortelius, together with the other participants named herein,
intends to file a preliminary proxy statement and appropriate
accompanying proxy card with the Securities and Exchange Commission
("SEC") to be used to solicit votes for the election of the
Ortelius Nominees at Trecora’s 2022 Annual Meeting of
Stockholders.
ORTELIUS STRONGLY ADVISES ALL STOCKHOLDERS OF THE COMPANY TO
READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS AS THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION REGARDING
THE NOMINEES. SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO CHARGE
ON THE SEC’S WEBSITE AT HTTP://WWW.SEC.GOV. IN ADDITION, THE
PARTICIPANTS IN THIS PROXY SOLICITATION WILL PROVIDE COPIES OF THE
PROXY STATEMENT WITHOUT CHARGE, WHEN AVAILABLE, UPON REQUEST.
REQUESTS FOR COPIES SHOULD BE DIRECTED TO THE PARTICIPANTS’ PROXY
SOLICITOR.
The participants in the proxy solicitation are anticipated to be
Ortelius, Pangaea Ventures, L.P. ("Pangaea"), Temnein Ventures III,
L.P. (“Temnein”); Panthalassa Ventures, L.P. (“Panthalassa”) and
Peter DeSorcy, as well as the Ortelius Nominees.
As of the date hereof, Pangaea directly beneficially owns
2,328,024 shares of common stock, par value $0.10 per share (the
"Common Stock"), of the Company, Temnein directly beneficially owns
346,659 shares of Common Stock, and Panthalassa does not
beneficially own any shares of Common Stock. Ortelius has voting
and dispositive power over the shares of Common Stock held by
Pangaea and Temnein, and through ownership and control Mr. DeSorcy
has voting and dispositive power over such shares.
***
__________________________
1 Based on information publicly available at this time. 2
Source: Bloomberg. Returns are adjusted for dividends. 3 Trecora
Resources 2021 proxy statement Peer Group includes: American
Vanguard Corporation (NYSE:AVD), Balchem Corporation
(NasdaqGS:BCPC), Chase Corporation (AMEX:CCF), Core Molding
Technologies, Inc. (AMEX:CMT), Flotek Industries, Inc. (NYSE:FTK),
FutureFuel Corp. (NYSE:FF), Hawkins, Inc. (NasdaqGS:HWKN), Intrepid
Potash, Inc. (NYSE:IPI), Innospec Inc. (NasdaqGS:IOSP), Kraton
Corporation (NYSE:KRA), Stepan Company (NYSE:SCL), LSB Industries,
Inc. (NYSE:LXU).
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version on businesswire.com: https://www.businesswire.com/news/home/20220207005343/en/
Stockholders:
Okapi Partners Mark Harnett, 646-556-9350
mharnett@okapipartners.com
Media:
Longacre Square Partners Charlotte Kiaie, 646-386-0091
ckiaie@longacresquare.com
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