RPM International Inc. is reviewing its business with a large activist hedge fund and expanding its board of directors with two representatives nominated by the fund.

The Medina specialty coatings, adhesives and building materials company said as part of the review it is creating an operating improvement committee made up of four board members, including the two new appointees.

The moves, announced Thursday, are intended to “bolster operational and financial improvement and enhance shareholder value,” RPM said in a news release.

“These initiatives follow constructive dialogue and collaboration with Elliott Management Corp. and entry into an associated cooperation agreement between RPM and affiliates of Elliott,” the company said.

Elliott Management Corp. is a New York-based hedge fund with about $34 billion in assets under management. Fortune magazine last year called Elliott, which was founded in 1977, the world’s largest, most successful activist hedge fund.

Elliott first approached RPM months ago about making changes to the business to improve shareholder return, said Barry Slifstein, RPM’s vice president of investor relations.

“It’s been a pretty constructive conversation,” Sliftsein said. “They came to the table with some ideas. We came to common ground on a number of them.”

Elliott Management likely owns stock in RPM, Slifstein said. As of the latest available regulatory filings with the Securities and Exchange Commission, the firm was not listed among the company’s largest shareholders.

Plans for change

RPM’s board and senior executives had been having their own internal discussions on making changes before being contacted by Elliott Management, Slifstein said.

The company had performed well from 2010 to 2016 and then “we hit a wall in ’17,” Slifstein said. “The stock moved sideways.”

RPM management response so far has included cuts, evaluating facilities and tightening selling, general and administrative costs, he said.

“We started to make some changes because we weren’t happy,” Slifstein said. With Elliott involved now, there’s more of a sense of urgency in making change, he said.

RPM stock rose on Thursday’s news. Shares rose $4.77, or 8.9 percent, to $58.09. Shares have traded from a low of $46.36 to a high of $60.53 over the last 52 weeks.

RPM said it hired AlixPartners LLP, an outside management consulting firm, to work with the new committee and management on the review.

RPM said it expects to provide a comprehensive update on the initiatives “as promptly as practicable” but no later than Nov. 30.

The two new board members are Kirkland B. Andrews and John M. Ballbach; their addition brings the board to 14 members.

Andrews is chief financial officer of NRG Energy Inc. He helped NRB with a financial transformation and also has 15 years investment banking experience.

Ballbach was an operating advisor from 2014 to 2017 with Clayton, Dubilier & Rice, a private equity investment firm. He also was chairman and director for Solenis, a specialty chemicals manufacturer. He was a director at Valspar from 2012 until the company was sold to Sherwin-Williams in 2017.

Cost-cutting strategy

RPM has been making progress in reducing expenses and making other improvements, Frank Sullivan, RPM chairman and chief executive officer, said in a news release.

“The initiatives announced today position us to progress significantly on these plans,” he said. “Both Kirk and John add new perspectives and proven operational track records to our board, and we look forward to benefitting from their expertise and experience as we take action to drive operational efficiencies, long-term performance, and value creation.”

In the company’s third-quarter earnings conference call with analysts in April, Sullivan said RPM was at the beginning stages of an operational improvement process that started in 2017. At that time, he said RPM was planning to realign businesses and consolidate business systems where appropriate.

For the first nine months of its 2018 fiscal year, RPM International reported net income of $252.1 million on revenue of $3.76 billion. That compares to net income of $53.8 million on revenue of $3.47 billion for the same period the previous year.

Jeff Rosenbaum, portfolio manager at Elliott Management, said in the release that the fund has worked constructively with RPM.

“RPM has an outstanding collection of leading brands and we believe the company has significant potential for further operating, financial, and balance sheet improvements,” he said.

Reporter Jim Mackinnon covers business and county government. He can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com. Follow him @JimMackinnonABJ on Twitter or www.facebook.com/JimMackinnonABJ