The next key event in A. Schulman Inc.’s unsolicited attempt to buy Ferro Corp. probably will hinge on the outcome of a proxy contest at Ferro’s annual shareholders meeting next month, Schulman’s chief executive officer said Tuesday.
Schulman CEO Joseph Gingo discussed the potential acquisition of Mayfield Heights-based Ferro with industry analysts, in addition to explaining why the polymer company’s second-quarter earnings fell short.
Shares sold off after A. Schulman Inc. lowered its earnings expectations for the year as second-quarter financials missed internal goals and analyst expectations. Executives of the Fairlawn company said earnings were hurt largely because of an unexpected drop in European orders in February.
Gingo said in an hourlong conference call that even with the second-quarter setback Schulman is sound financially.
“Our strong balance sheet and liquidity also provide us the ability to explore transformational acquisitions, such as our recent offer to acquire Ferro,” he said in opening comments. “We intend to transform A. Schulman beyond plastics into a premiere specialty chemical organization.”
Acquiring financially struggling Ferro and its complementary lines of chemical products and services would almost double the size of $2.1 billion Schulman.
Ferro’s board opposed Schulman’s initial offer of $855 million, or $6.50 a share plus assumption of debt, and has refused to meet with Gingo and other Schulman executives.
Schulman stock plunged 12.8 percent in trading Tuesday, losing $3.82 to close at $25.93.
Shares are down 10.4 percent, including dividends, since Jan. 1 but remain up 13.9 percent from a year ago.
The company announced after the stock market closed Monday that it had net income of $11.8 million, or 40 cents per share, on revenue of $522.4 million.
Adjusted earnings were $8 million, or 27 cents per share, compared with net income of $11.2 million, or 38 cents per share, for the second quarter in 2012.
Schulman said it expects to earn an adjusted $2.08 to $2.13 per share for the year, down from its previous announcement of $2.14 to $2.19 per share.
“We continue to have the financial strength and liquidity to pursue value generating acquisitions as well as transformational opportunities such as Ferro,” said Joe Levanduski, chief financial officer.
Schulman’s third quarter historically is its strongest, and this fiscal year appears to be no exception, Levanduski said.
Gingo said he continues to explore acquisitions for Schulman.
“I think Asia is the big growth opportunity,” he said. “We are looking for acquisitions in Asia. We are strongly pursuing them.”
Gingo said he is looking to the outcome of a proxy contest for Ferro’s board of directors as the next key event in his proposal to buy the specialty chemicals company, barring a surprise call beforehand from Ferro’s board. Dissident shareholders are trying to elect three people to Ferro’s board at its May 15 shareholder meeting.
“If that slate does well, I am very hopeful that slate is going to convince the other members of the board that they should at least talk to us and entertain a real analysis and offer,” Gingo said.
He also said he continues to meet with Ferro shareholders to gauge their sentiment.
“We have had many conversations with Ferro shareholders, and the overwhelming majority of those shareholders strongly stated that Ferro’s board should have engaged us in discussions,” he said.
Ferro on Tuesday said cost-cutting efforts are paying off and boosted its first-quarter earnings guidance to an adjusted profit of 5 to 7 cents per share, up from a previous forecast of 2 to 5 cents per share.
Ferro shares fell 8 cents Tuesday to $6.69.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.