(Reuters) – Activist hedge fund Trian Fund Management said Thursday it wants to replace PPG Industries (PPG.N) Chief Executive with his predecessor and suggested that the US paint and varnish company should be dissolved.
A precipitated silica plantation of PPG Industries is pictured in West Lake, Louisiana, USA on June 12, 2018. REUTERS / Jonathan Bachman
Trian, who now owns 2.9 percent of PPG, said in a presentation at an investment conference that PPG was urging Chuck Bunch back as CEO to replace Michael McGarry, who is currently chairman and CEO.
Since Bunch left in 2015, PPG has underperformed, Trian said. Trian referred to the profit warning and the correction of PPG's financial statements on October 8 due to accounting irregularities as evidence of problems in the company.
PPG announced a strong defense of its CEO on Thursday and said the board unanimously supported McGarry.
Trian wants the company to split into two separate and publicly traded companies that they believe would enable more strategic acquisitions in the future.
Separation could "release another 15 to 40 percent of shareholder value," said Ed Garden, Trian's chief investment officer and founding partner, at the conference, where he talked extensively about the investment.
Trian, co-founded by Nelson Peltz, said two weeks ago that it now owns 7 million shares of PPG. The PPG share rose 3.12 percent to $ 100.79 on Thursday, but has still fallen 16.74 percent since the beginning of the year.
Trian's biggest investments are General Electric Co. (GENE.) and Procter & Gamble (PG.N), where the company has executive seats. Trian's main fund posted a gain of 1.7 percent in the first nine months of the year, an investor in the fund said.
Trian's public push to oust McGarry is highly unusual for a company committed to working with target companies and trying hard to get out of the headlines.
"After three years of significant underperformance, driven by operational and strategic mishaps, we believe the change is justified and now is the time to bring Chuck Bunch back," Trian said in a statement.
Trian also wants to eliminate the company's practice of only re-electing a part of the executive board instead of the entire group each year, and says that such a move would align it with other major US companies.
PPG said in a statement that its strategic plan has positioned the company for growth. "We have indicated that we will inject cash into our shareholders and provide 65 percent of our cash in 2016 and 2017 for dividends and share repurchases totaling $ 2.7 billion.
The company said they would be open to hearing Trian on other topics.
Reporting by Aparajita Saxena in Bengaluru and Svea Herbst-Bayliss in New York; Arrangement of Shailesh Kuber and Diane Craft