Investor Urges Brenntag to Separate Specialties Unit

16.02.2023 - Activist investor Engine Capital, which owns a stake of about 1% in Brenntag, has written to the German multinational distributor urging it to spin off its specialties business.

The move by the New York-based investment fund is the second such call on Brenntag, repeating PrimeStone’s demands last December that the German distribution giant end talks with rival distributor Univar, repurchase shares and break up into two separate business units. Brenntag ended talks with Univar last month.

In a letter sent to Brenntag’s management on Feb. 14, Engine said Brenntag Specialties is not fulfilling its full potential and is underperforming its rivals. It did note, however, that Brenntag’s management had taken initial steps to fix this, notably by starting to separate certain aspects of Brenntag Specialties from Brenntag Essentials and acknowledging that the two divisions have different strategies, core capabilities and go-to-market strategies.

But, while this is “a step in the right direction,” Engine said that as long as Brenntag Specialties is structurally part of Brenntag, it will continue to lag its peers and be unable to optimize its operating performance.

Engine’s managing partner Arnaud Aidler and partner Brad Favreau recommended in their letter that Brenntag take three near-term actions. These are to publicly commit to prioritizing a separation of Brenntag Specialties along with providing a timeline for such a split, as well as establishing a “meaningful” share buyback program and add a shareholder representative to the supervisory board.

A “timely” spin-off of the Specialties business could double Brenntag’s share price, Engine said, while warning that the longer management delayed, the more market share the specialties division would lose to pure-play peers such as Azelis and IMCD.

Author: Elaine Burridge, Freelance Journalist