Barington Goes Activist on Xerium

Purpose of Transaction.

The Reporting Entities acquired beneficial ownership of the shares of Common Stock to which this Statement relates in order to obtain a significant equity position in the Company, the Common Stock of which, in the opinion of the Reporting Entities, was undervalued and represented an attractive investment opportunity when purchased.

The Reporting Entities believe that Xerium’s strong position in a highly concentrated market, as well as its attractive EBITDA margins and modest capital spending requirements, are not adequately reflected in the Company’s current stock price. The Reporting Entities believe that the Company can significantly improve long-term shareholder value by taking a number of steps. These include, among other things:

(i) exploring strategic transactions that include or facilitate a refinancing on more favorable terms of the Company’s $480 million aggregate principal amount of 9.5% senior secured notes, which are callable beginning in August 2018;

 

(ii) reducing the Company’s cost structure;

 

(iii) dedicating the Company’s ongoing free cash flow to reducing indebtedness; and

 

(iv) improving the Company’s corporate governance, including by implementing a majority voting standard for uncontested director elections.

 

By letter to the Secretary of the Company dated March 13, 2018 (hereinafter, the “Nomination Letter”), Barington Companies Equity Partners, L.P. (together with its affiliates, hereinafter “Barington”) nominated two persons for election to the Board of Directors of Xerium at the Company’s 2018 annual meeting of stockholders.

On March 19, 2018, Xerium announced that its Board of Directors has initiated a review of strategic alternatives to maximize shareholder value. According to the announcement, alternatives could include a sale of the Company or its divisions and selected assets in separate transactions, a strategic merger, a Reverse Morris Trust transaction or other business combination. The Company stated that there can be no assurance that the Board’s strategic review will result in any transaction, or any assurance as to its outcome or timing, and that the Company does not intend to disclose or comment on developments related to its review unless and until the Board has approved a specific transaction or otherwise determined that further disclosure is appropriate.

On March 20, 2018, representatives of Barington met with James F. Wilson, the Chairman of the Board of the Company. During the meeting, the representatives of Barington shared with Mr. Wilson certain of their recommendations to help improve long-term shareholder value at Xerium. They also expressed their hope that the Board’s review of strategic alternatives was not announced as a defensive measure in response to the Company’s receipt of the Nomination Letter.

Barington desires to continue to engage in discussions with Xerium concerning the business, operations, corporate strategy, management, cost structure, indebtedness and corporate governance of the Company, as well as Board representation.

None of the Reporting Entities have any present plans or proposals that relate to or would result in any of the actions specified in clauses (a) through (j) of the instructions to Item 4 of Schedule 13D, except as set forth herein or as would occur upon or in connection with any of the items or proposed actions discussed herein. The Reporting Entities have, and may again in the future, express their views to and/or meet with third parties regarding potential strategic transactions involving the Company or certain of the Company’s businesses or assets. The Reporting Entities intend to review their investment in the Company on a continuing basis. Depending on various factors including, without limitation, the Company’s response to the suggestions and proposals of the Reporting Entities, actions taken by management and the Board of Directors of the Company including, without limitation, in response to the Nomination Letter, the progress or results of the strategic review, the Company’s financial position and strategic direction, the price levels of the shares of Common Stock, other investment opportunities available to the Reporting Entities, conditions in the securities markets, and general economic and industry conditions, the Reporting Entities may in the future take such actions with respect to their investment in the Company as they deem appropriate including, without limitation, making proposals to the Company concerning changes to the capitalization, ownership structure or operations of the Company, soliciting proxies for the election of Barington’s nominees to the Board, purchasing additional shares of Common Stock, selling some or all of their shares of Common Stock, and/or otherwise changing their intention with respect to any and all matters referred to in clauses (a) through (j) of the instructions to Item 4 of Schedule 13D.

Link: https://www.sec.gov/Archives/edgar/data/1287151/000161577418002538/0001615774-18-002538-index.htm


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