Cookson Group Plc CKSN.L may break up into its two major divisions in an effort to improve shareholder returns and is to admit a partner from activist shareholder Cevian to its board, the British industrial materials supplier said.
The plan confirms break-up talk that has circulated for months since Cevian began building its stake, and pressure on the board built further on Thursday as almost a third of shareholders rebelled against the company's executive pay proposals for 2012.
Christer Gardell, managing partner of Sweden-based Cevian Capital, which owns about a fifth of Cookson shares, will join its board as a non-executive director, Cookson announced, ahead of its annual general meeting on Thursday.
The review will look into a potential demerger of its two main divisions — engineered ceramics and performance materials — and comes a few months after it sold its loss-making U.S. precious metals unit to Berkshire Hathaway (BRKa.N) (BRKb.N).
"We believe that this strategically makes sense, especially given the individual nature of the divisions," Numis Securities' analyst Scott Cagehin.
DEMERGER PLANS WELCOMED
Despite opposition to Cookson executives' remuneration, analysts welcomed the proposed demerger and the company's shares rose 9 percent to 701 pence at 10.21 a.m.
The engineered ceramics division, whose products are used in the glass and solar industries as well as by steelmakers and foundries, brought in revenue of 1.69 billion pounds last year.
The performance materials division, about half that size in revenue, supplies materials and chemicals to the electronics, automotive, industrial and construction markets.
"Management believes that following the substantial improvement at performance materials, the divisions can potentially be separated, which should drive further focus and performance," Alex Toms of BofA Merrill Lynch said.
Cookson said a separation of the two businesses may cost between 50 million pounds ($79.59 million) and 70 million pounds.
At Thursday's AGM, 32 percent of proxy votes, voted against Cookson's remuneration report, in protest at the structure of a 2009 long-term incentive plan. The report provides for a maximum payout of over 3 million pounds for Chief Executive Nick Salmon in 2012.
Earlier this month, one of Britain's most powerful investor groups, The Association of British Insurers (ABI), flagged concerns over pay at Cookson, people familiar with the matter said.
Cookson drew criticism from ABI for the way it calculated shareholder returns, which in turn help determine management bonuses, the people said, following a 2009 rights issue.
Investor anger over pay and performance has been a hot-button issue of late, leading to big protest votes at Barclays, Xstrata and William Hill, and even prompting the departures of chief executives at London-listed AstraZeneca, Aviva, and Trinity Mirror.
Cookson's shares have fallen over the past 12 months, and the company reported marginal profit growth for 2011.
But the industrial materials company's stock has risen nearly 75 percent since January 2009, when it came out with a deeply-discounted 12-for-one rights issue as it struggled amid plunging steel markets — and at least one analyst said he sided with the management's potential pay.
"Management has soldiered on through several lean years and we do not begrudge them the long-term incentive plan pay-out," Oliver Wynne-James of Panmure Gordon said in a note on Wednesday.
(Reporting by Brenton Cordeiro in Bangalore and Adveith Nair in London; Editing by Joyjeet Das and Andrew Callus)