Methanex Corporation (“Methanex” or the “Company”) (TSX:MX)
(NASDAQ:MEOH) filed a letter to shareholders today ahead of the
Company’s upcoming annual general meeting (the “Meeting”) on April
25, 2019.
The letter, included below, spotlights the clear
choice for shareholders: Methanex’s consistent strategy that has
balanced profitable growth with a demonstrated commitment to
returning excess cash to shareholders, versus M&G Investments’
(“M&G”) singular focus on divesting, not investing in the
Company’s growth.
The letter also addresses and corrects
misinformation recently published by M&G.
VOTING IS NOW OPEN
Shareholders are urged to vote management’s
WHITE proxy form or voting instruction form FOR only management’s
11 director nominees before April 23, 2019 at 10:30 a.m. (Vancouver
time) and WITHHOLD on M&G’s nominees.
Disregard any blue proxy you might receive from
M&G.
Voting is now open. If you have questions or
need help voting, contact Kingsdale Advisors at 1-888-327-0821 or
at contactus@kingsdaleadvisors.com.
Letter to shareholders:
Dear Fellow Shareholder,
Since the time you invested in Methanex
Corporation (“Methanex” or “Company”), the global leader in the
methanol industry, you have benefited from a clear and consistent
strategy that has balanced profitable growth with a demonstrated
commitment to returning excess cash to shareholders while, at the
same time, maintaining a strong balance sheet.
The good news is that over the last six years,
since John Floren became CEO at Methanex, this balanced approach
has enabled us to almost double our production by investing in high
quality, value creating projects while at the same time returning
$1.7 billion to shareholders through our dividend and share buyback
programs.
The bad news is that one shareholder now
threatens to upset this balanced approach and undercut the future
strategic growth of Methanex.
Based on our track record of long-term success
and a clear strategy for profitable growth, there is no case for
change.
As part of a self-interested effort to
dramatically change the direction and longstanding, effective
strategy of the Company, M&G Investments (“M&G”), a
shareholder who is taking an activist approach, has nominated four
unqualified and non-additive individuals to stand for election to
your board of directors (the “Board”) at our upcoming annual
general meeting of shareholders.
Our Board has the right mix of directors
balancing appropriate skills and the need for new, fresh
perspectives with important historical experience in a cyclical
industry. Replacing any of the directors with an M&G
nominee will leave significant competency gaps.
Despite our success, M&G does not want the
Company to grow. Shareholders should not be fooled by
M&G’s claim they still have a long-term focus. Being a
long-time investor does not mean M&G is committed to our
long-term strategy. Their campaign is notionally focused on the
evaluation process of one project –Geismar 3– in respect of which a
final decision is yet to be made. Given our long track record
of successfully executing complex capital projects, our Board has
repeatedly proven its capability in making decisions that have
resulted in the creation of long-term shareholder value.
We have actively and regularly engaged with
M&G, meeting face-to-face or speaking by phone with them at
least 15 times since the start of 2017. We have given
consideration to their recommendations for strategies and actions
that may advance the goal of building value for all our
shareholders and have taken steps, including two significant share
buybacks in the past 12 months, that are consistent with their
feedback. Shareholders are right then to ask: Why is there a
sudden cynicism? What is M&G’s motive?
M&G’s campaign is based on a flawed premise
that pursuing high-quality, profitable growth opportunities and
paying dividends and share buybacks are mutually exclusive.
They are not.
Let us be clear: We can and will continue
to profitably grow the Company and return cash to you as a
shareholder, as we have consistently done in the past.
Over our prolonged engagement with M&G, it
has become clear that their investment objectives have become
short-term and have diverged from our longstanding strategic plan
and the interests of other shareholders. As an example of
their short-term focus, M&G has been selling off their Methanex
shares, from a high of 17,431,718 to 12,706,401, a decrease of
roughly 27% from their peak position only a little over a year
ago. This is despite the consistent and significant return of
capital to shareholders via dividends and share
buybacks.
Based on widespread feedback, our shareholders’
message is clear: While Methanex operates in a cyclical
environment, balancing profitable growth while returning capital
and maintaining a strong balance sheet is the right strategy.
CONSISTENT STRATEGY. PROVEN
RESULTS
You wanted Methanex to take a balanced approach
to capital allocation by profitably growing our business while
returning excess cash to shareholders, and that is what your Board
has consistently delivered. The strategic investments we have made
in our business have strengthened our asset base, significantly
increased our global production capacity, enhanced our ability to
serve customers, and substantially improved our earnings
capabilities and cash generation potential over a wide range of
methanol prices.
Disciplined Investment Decisions to
Enhance Our Leadership Position in the Methanol Industry to Drive
Profitable Growth:Disciplined growth enables the Company
to maintain its leadership position while maintaining a strong
balance sheet. Since 2013, we have invested over $2.1 billion in
value creating capital expenditures growing from 7 to 11 plants in
operation with production increasing from 4.1 to 7.2 million
tonnes. We now have an approximate 14% share of the global methanol
market, more than double that of our next competitor. As the clear
global methanol leader, our plants are well-positioned on the cost
curve to be competitive through all points in the methanol price
cycle.
Global leadership is a key element of our
successful long-term strategy. We are focused on maintaining and
enhancing our position as the major producer and supplier in the
methanol industry, improving our ability to cost-effectively
deliver methanol to customers, and supporting both traditional and
energy-related global methanol demand growth. This leadership
position enables the Company to more effectively service our global
customer base and gives us invaluable market knowledge regarding
supply and demand opportunities.Consistent Track Record of
Returning Excess Cash to Shareholders:The successful
execution of capital projects has almost doubled production and
significantly improved our cash generation capability. Along
the way, shareholders have continued to benefit. On a three-year
basis, the Company’s total shareholder return is
76%, more than double the average of our peers and
the S&P/TSX Composite index. Shareholders have
consistently told us that Methanex is “best-in-class” for capital
allocation.
As we’ve grown, we have continued to return
excess cash to shareholders. Over six years, we have returned
$1.7 billion to shareholders through our dividend and share
repurchases. The combination of increased production and share
repurchases has more than doubled production capacity per
share.
As the following charts demonstrate, we have a
consistent track record of returning cash to shareholders while
investing in attractive capital growth projects, including during
the development of Geismar 1 and Geismar 2—the backbone of the
Company’s operating assets—and throughout all points of the
commodity cycle.
A photo accompanying this announcement is available
at http://www.globenewswire.com/NewsRoom/AttachmentNg/c6ca7c33-6e01-4483-bb99-516cb06d8ef0
In 2018, we achieved record production, sales
volume and the highest adjusted EBITDA, of $1.1 billion, in
Methanex’s history, surpassing the records we set in 2017. At the
end of the year, we had $256 million of cash on hand, a committed
revolving credit facility, and a robust balance sheet. We
have consistently completed our share repurchase programs. And, on
March 11, 2019, we announced a new normal course issuer bid to
repurchase up to an additional 5% of our outstanding shares.
Our strategy is clearly working.
A WINNING STRATEGY, LED BY A REFRESHED
BOARD WITH BEST-IN-CLASS GOVERNANCE
Methanex’s Board and management team have
established a strong track record of growth and creating returns
for shareholders.
Our directors are chosen based on a
comprehensive skills matrix that addresses the needs, skills,
experience and expertise required to oversee the continued growth
of the world’s largest methanol producer. We seek to balance
new points of view with important historical knowledge of and
experience with the Company. Our directors’ histories with the
Company provide invaluable expertise. Having experienced multiple
commodity cycles, they understand the risks inherent in the
industry and have in-depth knowledge of our sophisticated global
operations. We have 11 highly qualified and experienced
directors standing for re-election, ten of whom are independent and
four of whom joined the Board since 2016. They know Methanex well,
are leaders in their respective fields, and, with our share
ownership requirements, are aligned with the long-term interests of
our shareholders.
We are also proud of Methanex’s best-in-class
governance practices, as evidenced by the strong support for the
Company’s annual say on pay advisory vote, a diverse Board with
over one-third represented by female directors, and a strong
commitment to pay-for-performance.
Methanex’s Corporate Governance
Practices Are Regularly Recognized by Respected
Third-Parties: ISS - Methanex has been a
top performer according to ISS’ Governance QualityScore, achieving
a highly competitive minimum of upper 30th percentile amongst the
Company’s comparator index and regional peers.The Globe and
Mail - Methanex ranks in the top 20% in the Globe and
Mail’s comprehensive ranking of 237 Canadian boards.
Canadian Coalition for Good Governance
- Methanex received the Governance Gavel Award for Best
Disclosure of Board Governance Practices and Director
Qualifications from the Canadian Coalition of Good Governance.
Given this success, shareholders are right to
ask: what does M&G really want?
M&G’s ONE AND ONLY GOAL:
DIVEST
M&G has now adopted a short-term mindset,
evidenced by their relatively recent large sell-off of shares, that
is at direct odds with the long-term goals of the rest of our
shareholders. We would note that the M&G Global Dividend Fund
which owns M&G’s position in Methanex has underperformed its
benchmark in three of the past four years. Through several 13D
filings and meetings from 2017 to 2018, M&G has been pressuring
our Board into a single-focus strategy of repurchasing shares and
minimizing cash balances. As an example, in a January 12,
2018 filing, M&G stated that Methanex should use any cash above
a $200 million buffer to repurchase shares. They have also
indicated that, if the share price fails to increase via buybacks,
a strategic review should be undertaken, with the goal of
facilitating further buybacks or to explore the possibility of
selling assets to repurchase shares or even selling the
Company.
In a recent letter to shareholders, M&G goes
further, making a series of statements that reinforce that they are
averse to undertaking large profitable growth projects. They think
we shouldn’t be investing in our business. They think we should be
divesting. That is not a viable long-term strategy and not what our
other shareholders want.
As the Board has a duty to consider and act in
the best interests of all shareholders, we will continue to take a
responsible, balanced, and stable approach to decisions regarding
capital allocation. What we will not do is risk future profitable
growth to satisfy one shareholder’s short-term agenda or
accommodate unqualified directors on your Board.
M&G’s NOMINEES ARE NOT ADDITIVE TO
OUR BOARD
Based on our review of the individuals put
forward, we do not believe M&G’s nominees are qualified or
additive to the Board. None possess any experience in the
chemicals industry, while three of the four have little or no
public company board experience. In fact, the skills they may
have are duplicative or offer inferior attributes when held against
the current directors. As clearly shown in the skills matrix below,
there is obvious duplication and significant gaps in skillsets
between the incumbent directors targeted by M&G and M&G’s
nominees. Unnecessary duplication includes: leadership, finance,
international perspective and energy. It is important to note
that none of M&G’s nominees satisfy the expertise required by
the skills matrix regarding natural gas feedstock issues, health
safety and the environment, China, large capital project execution
and assessing growth strategies and risks. Each of these are
crucial gaps that cannot be understated.
A photo accompanying this announcement is available
at http://www.globenewswire.com/NewsRoom/AttachmentNg/53532192-2b1e-4ccf-b2a1-1434daafbe90
|
JUST NOT QUALIFIED |
Lawrence Cunningham: An academic
who adds very little to the boardroom in terms of industry
expertise. Limited board experience, at a software company, not
relevant to the chemicals industry. |
|
Paul Dobson: No public company
directorships. Duplicate financial and operational experience
to many incumbent directors. |
|
Kevin Rodgers: Possesses no public company
director or named executive officer experience. Duplicate banking
and financial experience when compared to current directors Howe,
Rennie, and Warmbold. |
|
Patrice Merrin: Lacks direct or significant
chemicals experience. Negative total shareholder return during her
directorships and named executive officer roles. Disparate board
experience leads to a skillset that duplicates several incumbent
directors. |
|
THE GEISMAR 3 OPPORTUNITY
With its single focus on divesting, M&G has
been critical of the Geismar 3 opportunity and has misstated our
Board’s position on the project. To be clear:
- We have not finalized our decision to pursue the project.
We have said we would focus on it as our next potential new plant
and we continue to consider whether it fits our dual objective of
combining growth and maintaining a strong balance sheet.
- Finding a suitable strategic partner that delivers more than
just money has always been our stated preference.
- All options remain on the table as we evaluate.
- Until our assessment is complete, we do not believe it is
appropriate to limit flexibility by prematurely eliminating any
options.
- The financial benefits of building this project with a partner
are being exaggerated by M&G. Not having a partner would
only reduce our capacity to return cash to shareholders by
approximately $200-$300 million spread over the 2019-2022
construction period.
We believe the opportunity to build a third
plant alongside our other two plants in Geismar, Louisiana is
unique and has a number of unparalleled advantages over other
projects. The project would allow us to increase our annual
production capacity by 1.8 million tonnes and capture significant
brownfield advantages and would lower our overall cost position.
This is in line with our stated strategy to continually enhance
value derived from our industry leadership position by growing our
production in step with methanol market growth.
M&G’s desire to unnecessarily rush a
decision on Geismar 3 and prematurely commit to a specific
structure could result in the loss of significant value for you as
a shareholder. Unlike M&G, we are committed to a
thoughtful, deliberate process without presupposing the outcome.
The Board has a rigorous evaluation process in place which it
follows for such projects.
It would be irresponsible for the Board to make
a decision before it has fully evaluated the project and until
management has completed its assessment of the project risks
(including balance sheet risk), and prepared plans to mitigate such
risks, and the frontend engineering work has been completed.
If the project overly restricts our financial
flexibility to continue with our balanced approach to profitable
growth and returning cash to shareholders, we will not proceed. An
example of the Board’s measured approach to considering growth
opportunities is its decision to reject a potential project in
Australia.
M&G’S MYTHS, METHANEX’S
REALITY
In its recent letter to shareholders, M&G
provides a number of inaccuracies and misstatements about the
Geismar 3 project that show they just don’t understand our
business. We thought it would be helpful to provide shareholders
with the facts:
|
|
M&G’S
MYTH |
REALITY |
“M&G firmly rejects the proposition that the project represents
the exceptional opportunity.” |
Projected returns are well above our cost of capital. |
“Methanex appears intent on financing this with high yield
debt.” |
We would not use high yield debt. Methanex is investment grade
rated. |
“An equity raise would also destroy significant value.” |
Methanex is not considering any equity raise. |
“Should [weak pricing occur] while Methanex is building Geismar 3,
shareholders would risk losing the total value of their investment
and there is no credible scenario under which the appropriate level
of capital return to shareholders could be maintained.” |
Although prices vary, management believes returns are attractive
and we will have the financial flexibility to manage such
variability and pursue buybacks at a wide range of methanol
prices. |
“The Board is allowing internal momentum within Methanex to
build-up to the point where approval will be a forgone
conclusion.” |
Our Board has a track record of sanctioning value-added projects
that have a solid Return on Capital Employed. Methanex has
previously rejected projects at the FID level. |
“…without the participation of a strategic partner such a project
would represent an unacceptable financial risk to the company given
the cyclical nature of its cashflows.” |
The Company believes it has the financial capacity and flexibility
to finance and build this project without a partner and maintain
investment grade leverage metrics. Construction and operational
expertise have been demonstrated with the Geismar 1 and Geismar 2
projects which cost $1.4 billion combined and was undertaken
without a partner.Any partner Methanex would choose needs to bring
more to the table other than just money. |
“Geismar 3 will place excessive leverage on the balance sheet” |
M&G incorrectly assumes that we will be using high yield debt;
Methanex is investment grade rated. Methanex has a demonstrated
track record of balancing prudent investment with capital return,
all at the same time maintaining among the most conservative
balance sheet across S&P 500 Chemical peers. |
“…we do not believe that there is a realistic number this FEED
study and business case could come to that would make financial
sense for Methanex to undertake Geismar 3 alone” |
Critical information from FEED will be used to make our final
investment decision. The difference in leverage and equity funding
between constructing Geismar 3 with a partner or without a partner
is not significant. This statement reinforces that M&G
does not want us to grow irrespective of whether or not there is a
sound business case for doing so. |
“If Methanex does move forward with Geismar 3 without a partner, it
would lose the ability to initiate share buybacks”
|
Our preliminary projections indicate that we can build Geismar 3
and continue to return capital to shareholders via dividends and
share purchases – with or without a partner. |
“…the best way to increase shareholder value is to maximize free
cash flow per share” |
The best way to build long-term value is by our balanced approach
to profitable growth with a commitment to return excess cash to
shareholders. |
|
|
VOTING IS NOW OPEN. DON’T
WAIT.
With strong financial performance, best-in-class
governance, a disciplined approach to growth, and a track-record of
returning excess cash to shareholders, Methanex is on the right
track. Do not risk jeopardizing this balance with M&G’s
unqualified and duplicative nominees.
Shareholders are urged to vote management’s
WHITE proxy form or voting instruction form FOR
only management’s 11 director nominees before April 23, 2019 at
10:30 a.m. (Vancouver time) and WITHHOLD on M&G’s nominees.
Disregard any blue proxy you might receive from
M&G.
Voting is now open. If you have questions or
need help voting, contact Kingsdale Advisors at 1-888-327-0821 or
at contactus@kingsdaleadvisors.com.
Sincerely, Bruce Aitken, DirectorDouglas Arnell,
DirectorHoward Balloch, DirectorJames Bertram, DirectorPhillip
Cook, DirectorJohn Floren (CEO), DirectorMaureen Howe,
DirectorRobert Kostelnik, DirectorJanice Rennie, DirectorMargaret
Walker, DirectorBenita Warmbold, Director
Methanex is a Vancouver-based, publicly traded
company and is the world's largest producer and supplier of
methanol to major international markets. Methanex shares are listed
for trading on the Toronto Stock Exchange in Canada under the
trading symbol "MX" and on the NASDAQ Global Select Market in the
United States under the trading symbol "MEOH". Methanex can
be visited online at www.methanex.com.
FORWARD-LOOKING INFORMATION
WARNING
This news release and accompanying letter to
shareholders contains forward-looking statements with respect to us
and the chemical industry. By its nature, forward-looking
information is subject to numerous risks and uncertainties, some of
which are beyond the Company's control. Readers are cautioned that
undue reliance should not be placed on forward-looking information
as actual results may vary materially from the forward-looking
information. Methanex does not undertake to update, correct or
revise any forward-looking information as a result of any new
information, future events or otherwise, except as may be required
by applicable law. Refer to Forward-Looking Information Warning in
the 2018 Management's Discussion and Analysis for more
information which is available from the Investor Relations section
of our website at www.methanex.com, the Canadian Securities
Administrators' SEDAR website at www.sedar.com and on the United
States Securities and Exchange Commission's EDGAR website at
www.sec.gov.
For further information, contact:
Kim CampbellManager, Investor RelationsMethanex
Corporation604 661-2600 or Toll Free: 1 800 661
8851www.methanex.com
Ian RobertsonExecutive Vice President,
Communication StrategyKingsdale AdvisorsDirect: 416-867-2333Cell:
647-621-2646Email: irobertson@kingsdaleadvisors.com
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