Voss supports strategic review at Griffon. An opportunity to create value may emerge
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Company: Griffon (GFF)
Company: Griffon operates through two segments. Consumer and Professional Products (“CPP”) conducts business through AMES. Founded in 1774, AMES is North America’s premier manufacturer and global supplier of branded consumer and professional tools and products for home storage and organization, landscaping, and lifestyle improvement. outdoor living. CPP sells products worldwide through a portfolio of leading brands including True Temper, AMES and ClosetMaid. Home and Building Products (“HBP”) conducts business through Clopay. Founded in 1964, Clopay is the largest manufacturer and distributor of steel garage doors and rolling doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and major home center retail chains across North America under the Clopay, Ideal and Holmes brand names. Steel rolling gate and door products designed for commercial, industrial, institutional and retail use are sold under the CornellCookson brand. The CPP business has approximately $1.2 billion in annual revenue and $115 million in EBITDA, and the HBP business has approximately $1 billion in annual revenue and $181 million in EBITDA.
Market value: $1.8 billion ($31.75 per share)
Activist: Voss Capital
Percentage of ownership: 5.17%
Average cost: $25.91
Activist Comment: Voss is a Houston-based hedge fund that focuses on low-track special situations. They are not traditional activists, but they have successfully used activism as a tool in the past.
What is happening?
On August 15, Voss expressed support for Griffon’s announcement in May 2022 that the board has initiated a review of strategic alternatives, including a possible sale, merger, divestiture, recapitalization or other strategic transaction. Earlier, at the company’s annual meeting, Voss began a proxy contest and successfully won a board seat for HC Charles Diao, one of two nominees for Voss’ directorship.
In the wings
Voss first said he owned Griffon in his Q3 2021 filing 13F. On Nov. 23, 2021, before he exceeded 5% ownership, he nominated three directors for election to the board and later narrowed his slate to two directors.
Throughout their proxy fight, the company has issued letters and presentations detailing its belief that Griffon has poor corporate governance and excessive executive compensation, and that the company should begin a strategic review. In a January 2022 presentation, he said Griffon stock could be worth $50/share (it’s currently in the $30 range) through the implementation of a plan that includes (i) selling defense electronics business, (ii) exploring alternatives for Home and Building Products, (iii) using cash to reduce debt and pay a special dividend, (iv) adjusting general business and (v) improve Consumer segment margins. Voss also criticized Griffon’s merger and acquisition strategy, specifically pointing out his disapproval of the company’s acquisition of Hunter Fan for $845 million from MidOcean Partners. Ultimately, at the 2022 annual meeting, shareholders elected one of Voss’ director nominees, HC Charles Diao, to the board where he currently serves as a director.
Fast forward six months: Voss has now increased its stake from 2.3% to 5.2% today. In its 13D filing, the company states that it is “satisfied with the issuer’s announcement in May 2022 that the board had initiated a process to review a full range of strategic alternatives to maximize shareholder value, including a sale, merger, divestiture, recapitalization or other strategic transaction.” Voss then noted that she had increased her investment hoping that the strategic review would lead to a transaction that unlocked value.
So the hardest part is done. Voss launched a proxy fight, won a seat on the board and now approves the company’s strategic review. Since Griffon sold its defense electronics business earlier this year for $330 million, strategic direction is likely focused on a potential sale of the Home and Building Products business.
This is not the first time that Voss has done a strategic thesis in a holding company. In their 13D on Benefytt Technologies filed in December 2019, they highlighted the company’s strategic opportunities and active M&A environment in this space – Benefytt Technologies was acquired by Madison Dearborn Partners in August 2020. Additionally, in January 2020, Voss filed a 13D on Rosetta Stone without Item 4 language, but the company was acquired by Cambium Learning on October 15, 2020.
There are several reasons to expect that a strategic transaction is likely to take place here: (a) the presence of Voss in the boardroom, (b) the company has already sold the business of defense electronics after Voss pleaded for it, and (c) the company announces that they are now pursuing further strategic review. Additionally, the next annual meeting of shareholders will be in February 2023 and for the first time, the Griffon will have a majority of directors (9 out of 14) up for election as they recently began the process of board declassification. So if the company doesn’t respond to Voss’s suggestions, the company could start another proxy battle for majority control this time.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist investments 13D. Griffon is a participation in the fund. Squire is also the creator of the AESG™ investment category, an activist style of investing focused on improving the ESG practices of portfolio companies.