What happened
Starboard Value LP failed in its attempt to overhaul the board of Huntsman (NYSE: HUN), a setback in the activist investor's campaign to shake up the chemicals maker. Shares of Huntsman are down more than 10% midday Friday as investors try to figure out what comes next.
So what
Starboard, which owns 8.8% of Huntsman shares, had nominated four candidates to the company's board as part of a campaign that argued that additional oversight was needed after years of underperformance. Huntsman shares have trailed the S&P 500 performance by more than 30 percentage points over the past five years. Starboard's campaign got a boost prior to the vote when advisory service Egan-Jones Proxy Services recommended Huntsman shareholders support the activist, but it wasn't enough to replace the board.
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Huntsman said Friday that shareholders had voted to elect all 10 of its director nominees. CEO Peter Huntsman in a statement said, "We appreciate the dialogue that we've had with a significant number of our shareholders during this campaign," and he pledged to continue overhauling the business.
"Over the past few years, we transformed our product portfolio to focus on 'value over volume' and fully deleveraged our balance sheet, earning an investment grade rating," Huntsman said. "The outcome of today's shareholder vote is validation of our portfolio strategy and recognition that the Huntsman of today is vastly different than the Huntsman of five years ago."
Starboard in a separate statement said it was "disappointed" with the results, but noted that based on preliminary results it appears fewer than 50% of the shares outstanding supported some of the company's nominees.
"We hope that the board recognizes that this clearly shows that shareholders not only expect management to fulfill its promises, but also expect the board to hold management accountable for these promises," Starboard managing member Jeffrey C. Smith said.
Now what
The market's reaction doesn't necessarily mean that investors were hoping for Starboard to succeed, but it does indicate that the pace of change is unlikely to accelerate. Traders often pile into shares of a company targeted by activists in hopes of getting a quick premium if the activist can force a sale, and at least some of that money is headed for the exits today, putting pressure on the stock.
As noted, Huntsman as part of the campaign pledged to improve profitability, repurchase shares, avoid large acquisitions and consider options for certain businesses. In time, all of that could work out quite well for investors. But Wall Street is showing no patience on Friday.
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