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Wescast's corporate strategy under fire
Wednesday, May 14, 2008
A shareholder of Wescast Industries Inc. is calling on the auto parts maker to review all options for enhancing shareholder value and adopt a proposal to do so by next January.
"Return on equity, profitability and sales of Wescast Industries Inc. have been declining since 2002," Stéphane Hallé, of Pierrefonds, Que., who owns about 12,000 shares of the company, said in a shareholder proposal that is scheduled to be voted on at Wescast's annual meeting today.
Wescast should consider buying back shares, merge or sell the company to a major global player in the auto industry or go private, Mr. Hallé said in his proposal, which the board of directors has urged shareholders to vote against at today's meeting.
"It's a friendly proposal," Mr. Hallé said in an interview. "I don't want to be activist at this point."
But he noted that when he first bought Wescast shares in 2006 the stock was trading between $12 and $14. "The performance of the stock is really disappointing. They are working on a strategy, but the fact is the results are not there yet," Mr. Hallé said.
The company, which is controlled by the LeVan family of Brantford, Ont., through multiple-voting class B shares, is one of the leading makers of exhaust manifolds and held 51 per cent of the North American market last year.
But its largest customers are the Detroit Three auto makers and a large chunk of its sales are for engines in pickup trucks, so Wescast is being battered by those three companies' production cuts and plant shutdowns as well as the soaring price of gas, which has sent pickup truck sales skidding.
High prices for raw materials such as steel and molybdenum also hurt profits, Wescast chief executive officer Ed Frackowiak told analysts and investors during a conference call last week.
The company reported a first-quarter loss of $2.5-million on revenue that tumbled 21 per cent to $81.9-million. Wescast suspended dividend payments in February.
Wescast's board said in its response to Mr. Hallé's proposal that the company's current strategic plan is designed to improve shareholder value.
The company's strategy is to expand beyond North America by starting operations in China and Eastern Europe, and to develop other engine components such as turbochargers in order to end its reliance solely on exhaust manifolds.
WESCAST INDUSTRIES (WCS.A)
Close: $8.71, unchanged
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