UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

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GCP APPLIED TECHNOLOGIES INC.

(Name of Registrant as Specified In Its Charter)

 

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The following letter was distributed to certain stockholders of GCP Applied Technologies Inc. on May 4, 2020.

Dear Fellow Shareholders:    During these unprecedented times the GCP Board and management team continue to focus on driving positive business momentum and delivering value for shareholders, while also ensuring the safety of our employees and customers. We continue to ask that you reflect on the significant results our Board has delivered, the proactive steps we have taken to position the Company for sustained success and the significant lengths to which the Board has gone to protect the rights of the majority of GCP shareholders from two large activist shareholders who have been seeking greater control over GCP. The GCP Board’s progress would be disrupted if Starboard were to replace a supermajority of GCP’s Board through its self-serving proxy contest, which is now interestingly supported by 40 North Management (“40 North”), an investor that has previously shown interest in acquiring additional GCP shares to take creeping control of your company and demanding significant board representation. We strongly recommend that shareholders vote the BLUE proxy card or voting instruction form to support GCP’s highly qualified slate of director nominees. The slate that GCP has nominated encompasses the expertise necessary to best support the execution of the Company’s strategy, while ensuring strong corporate governance and accountability to shareholders. Our slate also includes two new independent director nominees with significant, relevant industry experience and operating expertise. GCP Urges Shareholders to Vote “FOR” ALL Its Director Nominees on BLUE Proxy Card

 

GCP’s Refreshed Board Slate    GCP’s Refreshed Board Slate    If elected, 6 of 10 directors will have been appointed in past 3 years If elected, 6 of 10 directors will have been appointed in past 3 years Elizabeth Mora, 59    James F. Kirsch, 62 Chair, Independent Director since 2016 Independent Director since 2018 Randall S. Dearth, 56    Phillip J. Mason, 69 President & CEO of GCP, Director since 2019 Independent Director since 2016 Gerald G. Colella, 63    Danny R. Shepherd, 68 Independent Director since 2017 Independent Director since 2016 Janice K. Henry, 68    Armand F. Lauzon, 63 Independent Director since 2016    Independent Director Nominee in 2020 Clay H. Kiefaber, 64    John R. McPherson, 51 Independent Director since 2019 Independent Director Nominee in 2020 Despite this refreshment, GCP has separately offered Starboard and 40 North reasonable Board representation to resolve this unnecessary proxy contest, most recently: GCP OFFERED STARBOARD GCP OFFERED 40 NORTH independent directors identified by Starboard on    3    3 40 North representatives to join the GCP Board our 10-member Board    The addition of a fourth mutually agreeable independent The addition of a fourth mutually agreeable independent director director    Maintain independent Chairman STARBOARD COUNTER DEMAND 40 NORTH COUNTER DEMAND 6 seats on the Board, including a Starboard 6 of 9 seats on the Board (4 40 North nominees for employee becoming a director    itself and 2 Starboard nominees)    Control of Chairmanship (particularly that GCP appoint 2    40 North principals as Co-Chairs of the Board) Both 40 North and Starboard rejected any settlement that would involve any independent directors identified by an independent search firm. Investors GCP D.F. KING & CO., INC. JOELE FRANK, WILKINSON BRIMMER KATCHER Joseph DeCristofaro Tom Germinario +1 212.493.6922 Nick Lamplough / Andrew Squire 617.498.2616 Geoffrey Weinberg +1.212.493.6969 212.355.4449 investors@gcpat.com    

 

GCP’s Board Overseeing Positive Business Trajectory and Momentum and Is Already Executing on the Right Pillars for Growth After months of attempting to engage constructively with Starboard about its ideas for how GCP could enhance value, Starboard finally published its “plan” for GCP. Starboard’s “plan” is based on outdated anecdotes and data, and disregards the significant steps GCP has already announced. Indeed, Starboard proposes opportunities that are, at best, already being undertaken by GCP, and at worst, not realistic to GCP’s business. GCP has already announced – and is undertaking – steps to restructure its sales force, invest in the highest ROI projects and improve its ability to cross sell into more geographies. We have also already significantly reduced costs to improve margins, addressing both our supply chain and SG&A.    Both Starboard and 40 North appear focused on GCP’s performance under GCP’s former CEO and former directors. We encourage investors to consider that the majority of the current GCP Board has been refreshed in the last three years, excluding two new candidates standing for election this year, and under our new CEO Randy Dearth, we are enhancing results and making positive progress to revenue growth, cost cutting and enhanced profitability. History shows that the GCP Board has worked hard to deliver value over recent years, including divesting a non-core asset at a high premium, overseeing an exploration of strategic alternatives and serving as careful stewards for shareholders. Most importantly, GCP’s refreshed, experienced and independent Board has overseen the development of a clear strategy that is driving meaningful performance improvement, based on the following core pillars: ·· Return Specialty Building Materials (SBM) to growth by ·· Continue to build on VERIFI®’s momentum and success broadening market presence and accelerating introduction ·· Continue to execute on multi-phase cost optimization of new products program ·· Sustain improvement in Specialty Construction Chemicals ·· Simplify organizational structure to drive accountability (SCC) margins with core market focus and improved performance Under Randy’s leadership, GCP has successfully executed against our stated strategy and delivered results, which include: ·· An increase in gross margin by 140 bps year over year in million in 2020 cost savings already executed; 2019; ·· An increase in 4Q19 VERIFI® sales of 53% and an increase in ·· Four consecutive quarters of improved profitability for installed truck base of 56%; SCC, with the 5th consecutive quarter expected in 1Q20; ·· The best year of price capture as a public company in 2019; ·· An increase in total cost reduction initiatives, targeted at    to drive long-term organic growth; ·· Investing in SBM and approximately $80 million in annualized savings, including approximately $33 million total cost savings achieved ·· Installing new leadership for SCC and SBM with a through 2019 and approximately $14 million of planned $26 streamlined, Board-approved organization. The strong momentum overseen by this Board has continued into 2020, as demonstrated by our expected first quarter results provided on April 15, which significantly exceeded consensus estimates and are expected to represent our best first quarter earnings performance since 2016. Highlights of these expected results include sales growth in North America in both SCC and SBM, approximately 17% year-over-year growth in expected Adjusted EBIT*, expected Adjusted EBIT Margin* expansion to approximately 6.5% compared to 5.3% in the first quarter of 2019, and approximately 29% year-over-year growth in Adjusted EPS*. Furthermore, our long-term focus on cost management and commitment to prudent capital management have made our strong balance sheet and liquidity position a true competitive differentiator. With no near-term debt maturities, and significant financial flexibility to weather the ongoing economic uncertainty caused by the COVID-19 pandemic, GCP is well positioned to continue to drive positive business momentum and execute our strategic operating plan to deliver value to our shareholders. A vote “FOR” all of GCP’s director nominees on the BLUE proxy card can help ensure our progress continues. *Non-GAAP financial measures. See below for important information regarding such non-GAAP measures.

 

GCP’s Refreshed Board has Acted Responsibly to Avoid a Proxy Contest and to Reach a Reasonable Settlement with Both Starboard and 40 North We recognize that GCP has two large shareholders, 40 North and Starboard, which are each 13D filers and known activist investors, and each has expressed a desire to significantly influence the Company’s governance and strategic direction. While the GCP Board and our slate for election at the Annual Meeting have been significantly refreshed, we have tried many times over the last year to find reasonable compromises with both Starboard and 40 North, and made various reasonable proposals to each of them that did not give up control. Starboard and 40 North Refuse to Settle for Less Than Control of Your Company We Do Not Believe Turning Over a Supermajority of the Board to Nominees of One or Two Shareholders Is Appropriate Given Starboard’s and 40 North’s unwillingness to consider a reasonable proposal for Board representation, we are wary of any Board structure that would allow 40 North or Starboard, individually or collectively, to obtain effective Board control, which would allow them to unduly influence strategic decisions for their own benefit, including potentially facilitating 40 North’s acquisition of GCP (or additional shares of GCP) without paying a control premium to other shareholders. Our skepticism of the Starboard and 40 North agenda is further underscored by the fact that, last year, Starboard was supportive of the stockholder rights plan GCP implemented and now – without explanation – has opposed the rights plan in its proxy materials. One thing is certain: GCP’s Board has consistently acted to protect the rights and interests of the majority of GCP’s shareholders, and will continue to do so. 40 North’s Public Statements Are a Misleading Attempt to Achieve a Self-Serving Agenda to Control GCP, Which It Has Been Attempting for Several Years 40 North’s recent letter to the GCP Board paints a picture of a long-term, passive shareholder that has finally lost confidence in the Company’s leadership. This narrative is extremely misleading and leaves out a number of key facts: ·· 40 North obtained Hart-Scott- and prevent 40 North from acquiring a mutually agreeable resolution that Rodino clearance to acquire up to effective control of GCP without protects the interests of ALL GCP approximately 50% of GCP’s stock paying a control premium to GCP’s shareholders. and in March 2019, shortly after the other shareholders as well as to limit ·· In response to our most recent Company announced a strategic 40 North’s ability to block a potential outreach just a few weeks ago, 40 alternatives process, rapidly acquired transaction with a third party. North demanded six board seats (four ~10% of GCP stock, taking its ·· 40 North has been consistently 40 North nominees and two Starboard shareholding – overnight – to ~25%. As demanding significant board nominees) and gave our CEO an a result, the GCP Board was forced to representation and control of the ultimatum of 24 hours to acquiesce to move swiftly to adopt a stockholder Chair role and unwilling to accept this proposal. rights plan to protect the interests GCP’s numerous attempts to reach of the majority of GCP shareholders In 40 North’s most recent public statement, nowhere do they dispute — because they cannot based on the facts — that their proposal to GCP was that GCP’s Board accept a demand to put in place a board of 9 members comprised of 3 GCP nominees, an individual selected by 40 North, whom they put on W.R. Grace’s Board, 2 Starboard nominees and 3 40 North employees, including 2 principals of 40 North who would be co-chairs of the GCP Board. GCP shareholders should be very skeptical about this proposal from an investor with a portfolio company that is a natural acquirer of GCP, who stealthily increased its position to 25% of the Company and who has obtained Hart-Scott-Rodino approval to acquire up to 50% of GCP. As one example of previous 40 North activism and actions to the detriment of shareholders, 40 North promised that Clariant would have a great future when 40 North led an effort to block the merger of Clariant with Huntsman. Then, after the merger was blocked, 40 North immediately turned around and sold shares of Clariant, and the stock thereafter plummeted 31%.

 

Starboard’s Track Record in Similar Situations Is Highly Questionable We strongly believe that Starboard’s attempt to significantly alter the composition of the Board presents unnecessary risk for your investment and could undermine the Company’s current strategy – a strategy that is demonstrating results. Though Starboard touts it delivers great returns, in truth, where Starboard has obtained similar levels of board representation to what it is seeking at GCP, their campaigns have sometimes resulted in significant value destruction. In fact, in situations where Starboard appointees have comprised at least half of the board, average total shareholder returns underperformed the S&P 500 by 29% after the date Starboard appointees first comprised at least half of the board. This excludes the recent significant stock market downturn associated with the COVID-19 pandemic (measuring returns as of February 20, 2020). Notably, at LSB, arguably the most relevant business to GCP, the company lost 94% of its equity value after Starboard appointees joined the board. LSB’s Stock Price Declined 94% After Starboard Appointees Joined the Board — LSB Is a More Relevant Business to GCP than Either Darden or Marvell 50 3/10/15—Starboard’s Letter to LSB Board 45 “Importantly we believe that many of this business’s repeated missteps could have been 40 prevented with proper management and oversight.” 35 “What we cannot understand, however, is the Board’s stubborn stance that, even though it is absolutley critical that LSB execute on long overdue operational improvements this year, shareholders ) 30 should entrust this critical tast to the same management team that has constantly failed to execute.” ( $ 25 6/5/14 SBV nominee Greenwell is appointed Price SBV appointees 9/4/15 |    interim CEO 20 gain 3 of 10 12/22/15 | Greenwell is appointed President and CEO board seats Share 15 4/26/15 10 SBV gain additional board $2.52 5 seats; 8 of 13 SBV directors appointees represent 0 4/3/14 3/19/16 3/5/18 2/20/20 The GCP Board Slate Is Best Qualified to Protect the Interests of ALL Shareholders At GCP’s upcoming Annual Meeting on May 28, 2020, shareholders will be asked to make an important decision regarding the composition of the Company’s Board. The GCP Board slate is truly independent and committed to the interests of ALL shareholders and firmly believes that Starboard’s proxy fight to gain control of a supermajority of our Board and the actions by 40 North are not in the best interests of the Company or other GCP shareholders. We strongly urge shareholders to vote the BLUE proxy card or voting instruction form and support ALL of GCP’s highly qualified, independent slate of director nominees. As always, we will continue to execute on our strategy in this unprecedented and rapidly evolving operating environment to drive value for you, while also ensuring the safety, health and wellbeing of our employees, customers and business partners. If you have any questions or need any assistance voting your BLUE proxy card or voting information form, please contact GCP’s proxy solicitor D.F. King & Co., Inc. at (866) 796-6867 or gcp@dfking.com. We appreciate your continued investment in the Company. Sincerely, Elizabeth Mora Randall S. Dearth Independent Chairman of the Board of Directors President and Chief Executive Officer

 

GCP Urges Shareholders to Vote “FOR” ALL Its Director Nominees on BLUE Proxy Card Additional Information GCP has filed a definitive proxy statement and BLUE proxy card with the U.S. Securities and Exchange Commission (the “SEC”) in connection with its solicitation of proxies for its 2020 Annual Meeting of Stockholders. GCP STOCKHOLDERS ARE STRONGLY ENCOURAGED TO READ THE DEFINITIVE PROXY STATEMENT (AND ANY AMENDMENTS AND SUPPLEMENTS THERETO) AND ACCOMPANYING PROXY CARD, AS THEY CONTAIN OR WILL CONTAIN (IN THE CASE OF AMENDMENTS OR SUPPLEMENTS) IMPORTANT INFORMATION. Stockholders may obtain the definitive proxy statement (and any amendments or supplements thereto) and other documents filed by GCP with the SEC without charge from the SEC’s website at www.sec.gov. Certain Information Regarding Participants GCP, its directors and certain of its executive officers may be deemed to be participants in connection with the solicitation of proxies from GCP’s stockholders in connection with the matters to be considered at the 2020 Annual Meeting. Information regarding the ownership of GCP’s directors and executive officers in GCP stock is included in their SEC filings on Forms 3, 4 and 5, which can be found through the SEC’s website at www.sec.gov. More detailed and updated information regarding the identity of potential participants, and their direct or indirect interests, by security holdings or otherwise, is set forth in the definitive proxy statement (and any amendments and supplements thereto) filed with the SEC. These documents can be obtained free of charge from the sources indicated above. Cautionary Statements Regarding Forward-Looking Information This announcement contains “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when GCP or its management is discussing its beliefs, estimates or expectations. Such statements generally include the words “believes,” “plans,” “intends,” “targets,” “will,” “expects,” “estimates,” “suggests,” “anticipates,” “outlook,” “continues,” or similar expressions. These statements are not historical facts or guarantees of future performance but instead represent only the beliefs of GCP and its management at the time the statements were made regarding future events which are subject to certain risks, uncertainties and other factors, many of which are outside GCP’s control. Actual results and outcomes may differ materially from what is expressed or forecast in such forward-looking statements. Forward-looking statements include, without limitation, statements about expected financial positions; results of operations; cash flows; financing plans; business strategy; operating plans; strategic alternatives; capital and other expenditures; competitive positions; growth opportunities for existing products; benefits from new technology and cost reduction initiatives, plans and objectives; and markets for securities. Like other businesses, we are subject to risks and uncertainties that could cause our actual results to differ materially from our projections or that could cause other forward-looking statements to prove incorrect. Factors that could cause actual results to materially differ from those contained in the forward-looking statements, or that could cause other forward-looking statements to prove incorrect, include, without limitation, risks related to: the cyclical and seasonal nature of the industries that GCP serves; foreign operations, especially in emerging regions; changes in currency exchange rates; the cost and availability of raw materials and energy; the effectiveness of GCP’s research and development, new product introductions and growth investments; acquisitions and divestitures of assets and gains and losses from dispositions; developments affecting GCP’s outstanding liquidity and indebtedness, including debt covenants and interest rate exposure; developments affecting GCP’s funded and unfunded pension obligations; warranty and product liability claims; legal proceedings; the inability to establish or maintain certain business relationships and relationships with customers and suppliers or the inability to retain key personnel; the handling of hazardous materials and the costs of compliance with environmental regulations; extreme weather events, natural disasters and the COVID-19 pandemic. These and other factors are identified and described in more detail in GCP’s Annual Report on Form 10-K, which has been filed with the U.S. Securities and Exchange Commission and is available online at www.sec.gov, and subsequent quarterly reports. Readers are cautioned not to place undue reliance on GCP’s projections and other forward-looking statements, which speak only as of the date thereof. GCP undertakes no obligation to publicly release any revision to its projections and other forward-looking statements contained in this announcement, or to update them to reflect events or circumstances occurring after the date of this announcement. Non-GAAP Financial Measures In this communication, the Company refers to non-GAAP financial measures including: Adjusted EBIT, Adjusted EBIT Margin, and Adjusted EPS. These non-GAAP measures do not purport to represent income or liquidity measures as defined under United States Generally Accepted Accounting Principles (“GAAP”), and should not be considered as alternatives to such measures as an indicator of GCP’s performance. These measures are provided to investors and others to improve the period-to-period and peer-to-peer comparability of GCP’s financial results and to ensure that investors understand the information GCP uses to evaluate the performance of its businesses. The following are the non-GAAP financial measures presented in this communication: The Company defines Adjusted EBIT (a non-GAAP financial measure) to be net income (loss) from continuing operations attributable to GCP shareholders adjusted for: (i) gains and losses on sales of businesses, product lines and certain other investments; (ii) currency and other financial losses in Venezuela; (iii) costs related to legacy product, environmental and other claims; (iv) restructuring and repositioning expenses, and asset impairments; (v) defined benefit plan costs other than service and interest costs, expected returns on plan assets and amortization of prior service costs/credits; (vi) third-party and other acquisition-related costs; (vii) other financing costs associated with the modification or extinguishment of debt; (viii) amortization of acquired inventory fair value adjustments; (ix) tax indemnification adjustments; (x) interest income, interest expense and related financing costs; (xi) income taxes; (xii) shareholder activism and other related costs; and (xiii) certain other items that are not representative of underlying trends. Adjusted EBIT Margin is defined as Adjusted EBIT divided by net sales. The Company uses Adjusted EBIT to assess and measure its operating performance and determine performance-based employee compensation. The Company uses Adjusted EBIT as a performance measure because it provides improved quarter-to-quarter and year-over-year comparability for decision-making and compensation purposes and allows management to measure the ongoing earnings results of our strategic and operating decisions. The Company defines Adjusted EPS (a non-GAAP financial measure) to be earnings per share (“EPS”) from continuing operations on a diluted basis adjusted for: (i) gains and losses on sales of businesses, product lines and certain other investments; (ii) currency and other financial losses in Venezuela; (iii) costs related to legacy product, environmental and other claims; (iv) restructuring and repositioning expenses and asset impairments; (v) defined benefit plan costs other than service and interest costs, expected returns on plan assets and amortization of prior service costs/credits; (vi) third-party and other acquisition-related costs; (vii) other financing costs associated with the modification or extinguishment of debt; (viii) amortization of acquired inventory fair value adjustments; (ix) tax indemnification adjustments; (x) shareholder activism and other related costs; (xi) certain discrete tax items; and (xii) certain other items that are not representative of underlying trends. GCP uses Adjusted EPS as a performance measure to review its diluted earnings per share results on a consistent basis and in determining certain performance-based employee compensation. Adjusted EBIT, Adjusted EBIT Margin, and Adjusted EPS do not purport to represent income measures as defined in accordance with U.S. GAAP. These measures are provided to investors and others to improve the period-to-period comparability and peer-to-peer comparability of GCP’s financial results and to ensure that investors understand the information GCP uses to evaluate the performance of its businesses. Adjusted EBIT has material limitations as an operating performance measure because it excludes costs related to income and expenses from restructuring and repositioning activities which historically have been a material component of net income (loss) from continuing operations attributable to GCP shareholders. Adjusted EBITDA also has material limitations as an operating performance measure because it excludes the impact of depreciation and amortization expense. GCP’s business is substantially dependent on the successful deployment of capital, and depreciation and amortization expense is a necessary element of its costs. GCP compensates for the limitations of these measurements by using these indicators together with net income (loss) measured in accordance with U.S. GAAP to present a complete analysis of its results of operations. Adjusted EBIT and Adjusted EBITDA should be evaluated together with net income (loss) from continuing operations attributable to GCP shareholders measured in accordance with U.S. GAAP for a complete understanding of GCP’s results of operations. The Company has not provided comparable GAAP financial information on a forward-looking basis because the Company is unable to estimate with reasonable certainty unusual or unanticipated charges, expenses or gains without unreasonable effort. These items are uncertain, depend on various factors, and could be material to the Company’s results computed in accordance with U.S. GAAP. As a result, the Company has not provided a reconciliation to such measures because it is not practicable at the time of this communication to determine or estimate each of the items that the Company excludes to calculate the comparable non-GAAP financial measure, which items and amounts could be material. 1 LSB Industries, Depomed and Comscore lost almost all of their equity value after Starboard gained board representation. LSB Industries: (94%) returns; Depomed: (95%) returns; Comscore: (87%) returns. 2 lLSB Industries, Depomed and Comscore lost almost all of their equity value after Starboard gained board representation. LSB Industries: (94%) returns; Depomed: (95%) returns; Comscore: (87%) returns.