A leading industrial distributor is “deeply undervalued” by investors and should consider a sale that would take it private, according to a recent letter from one of its minority stakeholders.
Engine Capital, a New York hedge fund and activist investor, wrote in a letter seen and first reported by Bloomberg that despite MRC Global’s increasing market presence and improving gross margins, the Houston oil and gas, energy and utility distributor — no. 10 on ID’s recent Big 50 list — continues to trail peer companies and other benchmarks in its returns to shareholders.
The firm — which reportedly holds about a 4% stake in MRC — suggested that taking the company private would reduce its exposure to market volatility. MRC’s stock price had fallen by about 11% so far this year.
A sale could also resolve a dispute with another investment firm and MRC stakeholder, Cornell Capital, which sued the company over its plans to refinance a loan earlier this year. The move, Engine officials wrote, would allow MRC to “pay Cornell what it wants” while providing “fair value” to its shareholders.
Engine contended that the board’s current strategy, by contrast, could involve potential litigation with Cornell along with a mergers and acquisitions effort that may introduce “significant new risks.”
An MRC spokesperson told Bloomberg in a statement that the company is “focused on driving shareholder value every day” by growing its business, profits, cash flow, and capital efficiency, as well as “prudently managing our balance sheet.”
“The MRC board and management team are committed to serving in the best interests of all our shareholders and we will continue to take actions that are in the best interests of driving long-term value creation,” the company official added.
