The Shareholder Committee for the Future of Ferro Comments on Ferro's Rejection of A. Schulman's Offer to Acquire Ferro for $6.50 Per Share

Thu Mar 7, 2013 8:00am EST

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EXPRESSES DISAPPOINTMENT WITH FERRO'S 2012 FOURTH QUARTER AND FULL-YEAR RESULTS
STAMFORD, Conn.,  March 7, 2013  /PRNewswire/ -- The Shareholder Committee for
the Future of Ferro, headed by FrontFour Capital Group LLC and Quinpario
Partners LLC, today issued an open letter to the shareholders of Ferro
Corporation (NYSE: FOE) commenting on Ferro's rejection of A. Schulman's offer
to acquire Ferro for  $6.50  per share and expressing its disappointment with
Ferro's financial results for the fourth quarter and full-year ended  December
31, 2012.    

The full text of the letter follows.

The Shareholder Committee for the Future of Ferro   
Two Stamford Landing   
68 Southfield Avenue, Suite 290   
Stamford, CT  06902

March 7, 2013

Dear Fellow Shareholders of Ferro Corporation:

As we previously disclosed to shareholders of Ferro Corporation ("Ferro" or the
"Company"), The Shareholder Committee for the Future of Ferro (the "Committee"),
headed by Quinpario Partners LLC and FrontFour Capital Group LLC, has nominated
a slate of three highly-qualified candidates for election to the board of
directors of Ferro at its 2013 Annual Meeting of Shareholders.  The Committee is
seeking Board representation to address significant issues facing the Company,
including its inflated cost structure, difficulties with its portfolio of
businesses and history investing in underperforming businesses, all of which
have led to poor financial and share price performance.  Recent events,
including Ferro's abrupt rejection of A. Schulman's offer to acquire the Company
for  $6.50  per share and the Company's 2012 fourth quarter and full-year
financial results have not only reaffirmed our view that the current Board is
not equipped to address the serious operational and financial concerns we have
raised but also call into question whether the Board is now seeking to entrench
itself at the expense of shareholders.   

Ferro's summary rejection of A. Schulman's offer to acquire the Company suggests
that the Board may be seeking to entrench itself

On  March 4, 2013, A. Schulman, a leading international supplier of
high-performance plastic compounds and resins with product lines and business
models similar to those of Ferro, announced that it made a proposal to acquire
all the outstanding shares of the Company for  $6.50  per share (to be paid half
in cash and half in shares of A. Schulman stock).   

While we do not believe the offer fully values Ferro, the manner in which the
Ferro Board summarily rejected the offer without appearing to have engaged A.
Schulman and attempting to negotiate a higher price speaks volumes.  According
to A. Schulman, it expressed its "strong intent" in pursuing the combination in
a letter to Ferro on  February 13, 2013  and stated that, with greater
visibility into Ferro's business, its offer could be adjusted subject to
customary due diligence.  The Ferro Board subsequently rejected the offer and
never publicly disclosed A. Schulman's overtures to the public, which appear to
have commenced as early as November 2012.  Had the best interests of
shareholders been a priority to the Ferro Board, we believe it would have at the
very least attempted to engage in meaningful discussions with A. Schulman in
order to negotiate a higher price that would maximize shareholder value.  After
all, what would be the harm in entering into discussions with A. Schulman? 
While we do not view A. Schulman's current offer as adequate, shutting the door
on this offer within only two weeks after its submission without entering into a
meaningful dialogue with A. Schulman suggests entrenchment which simply will not
be tolerated by the shareholders.  The Committee supports the Company fully
exploring the potential sale of Ferro at a price that fully and fairly values
the Company, whether to A. Schulman or any other potential acquirer.   

Ferro's financial results continue to disappoint shareholders

On  March 5, 2013, Ferro issued a press release announcing its 2012 fourth
quarter and full-year financial results and filed its Form 10-K for fiscal 2012.
 Ferro's financial results were disappointing and should give shareholders
little confidence that the Company's financial performance will improve any time
soon.   

Ferro continues to fall short of guidance for the ninth consecutive quarter

For a stunning ninth quarter in a row, Ferro fell short of guidance.  Ferro's
2012 guidance revisions represent the starkest illustration of this failure. 
After starting the year at an Adjusted EPS for FY 2012 guidance of  $0.40  - 
$0.65  (2/28/12), management revised guidance downwards to  $0.15  -  $0.20 
(7/25/12) and again to  $0.07  -  $0.12  (10/09/12), before finally delivering a
mere  $0.09  Adjusted EPS for FY 2012, compared with  $0.80  Adjusted EPS for FY
2011.

Management's perennial failure to meet its guidance has made it extremely
difficult for shareholders to monitor their investments in the Company.  If
management is incapable of achieving its own guidance, we are not confident in
their ability to improve the Company's overall financial performance.   

Management's inability to achieve guidance gives us even less confidence that
the Company will be able to achieve its modest financial targets for 2015. 
Management has indicated that if it implements its cost-cutting initiatives and
achieves its 2015 plan, it will have EBITDA Margins of 11%.  This is simply not
good enough.  At EBITDA Margins of 11%, the Company would still be significantly
underperforming its self-defined peer group, whose current median EBITDA Margin
is 14%.  Does this Board really believe it is acceptable to continue to
underperform its peers and to do so through 2015 at the least?

Ferro has taken significant impairment charges over the last two years



Ferro's 2012 impairment charges of  $215 million  are up significantly from the
2011 impairment charges of  $12 million.  The primary driver of the impairment
charges taken against goodwill and property, plant and equipment in 2012 was the
decline in profitability of the Electronic Materials segment.  Within that
segment, the Company maintained Goodwill at  $153 million  in 2010 and 2011,
until writing it off to Zero in 2012.

The implications of this significant impairment charge are in our view
straightforward - the Board and management have neither been able to assess the
carrying value of its assets nor able to estimate future cash flows its assets
would generate.  

Despite Ferro's purported focus on cutting costs, operating margins continue to
deteriorate

Ferro's Operating Margin in 2012 was 3.7%, down from 7.5% in 2011. 
Additionally, a  material decline  in Ferro's Gross Margins illustrates a
similar concerning trend - in 2012, Gross Margin was 16.8%, down from 19.1%, and
21.8% in 2011 and 2010, respectively.  A segment analysis of 2011 vs. 2012
Operating Margins highlights a worrisome conclusion - operating performance is
getting worse across each of Ferro's key business segments - Electronic
Materials, Performance Coatings, Color & Glass Performance Materials and Polymer
Additives - in a year in which Specialty Chemicals indexes have outperformed the
market.  While the Company continues to advance its purported focus on cutting
costs, the Operating Margin and Gross Margin results in our view refute any
claims that those cost-cutting efforts are creating value for shareholders.

                                                         
                                   2011    2012          
 Segment Net Sales- ($M)                                  
 Electronic Materials               623.0   293.8   down  
 Performance Coatings               602.6   587.7   down  
 Color and Glass                    396.3   371.7   down  
 Polymer Additives                  337.0   320.6   down  
 Specialty Plastics                 172.0   170.7   down  
 Pharmaceuticals                    24.9    24.0    down  
 Total Segment Net Sales            2155.8  1768.6  down  
                                                         
 Segment Income (Loss) - ($M)                             
 Electronic Materials               68.0    16.1    down  
 Performance Coatings               34.0    26.3    down  
 Color and Glass                    29.7    26.1    down  
 Polymer Additives                  15.8    12.7    down  
 Specialty Plastics                 9.4     14.1    up    
 Pharmaceuticals                    3.7     2.4     down  
 Total Segment Income               160.7   65.5    down  


Ferro's realignment of its business segment reporting is confusing to
shareholders and the Board's failure to allow shareholders and analysts to ask
questions regarding the realignment during the  March 5  earnings call was not
well received by the investment community

The Committee is a strong advocate of simplifying Ferro's corporate structure to
one that streamlines costs, reduces complexity and enables growth.  While
management has started to take a step in that direction, it is unclear how the
new structure delivers operational and financial performance.  During the  March
5  earnings call, Ferro announced that it is reducing its structure from eight
product groups to five under two organizations - performance materials and
performance chemicals.   The realignment of the Company's business segment
reporting continues to be confusing and prevents shareholders from comparing
current financial results against those of prior reporting periods.

The manner in which Ferro conducted its earnings call had the effect of
silencing shareholders

Representatives of the Committee and other shareholders and analysts of Ferro
dialed into the  March 5  earnings call with the expectation that management
would address various questions we all had regarding the Company's financial
results and A. Schulman's acquisition proposal.  We were shocked when management
stated in the beginning of the call that it would forego a Q&A session and would
instead contact investors and analysts after the call to discuss any questions
they may have.  To add insult to injury, the only information management gave
regarding the A. Schulman offer was confirmation that it had received it, that
the Ferro Board unanimously determined that the offer is not in the best
interest of shareholders and that continued execution of the Company's strategy
outlined during the call will deliver greater value to shareholders.  There was
no discussion regarding the specific reasons why management did not think the
offer was adequate, why it did not seek to engage in negotiations with A.
Schulman to increase its bid or why it never publicly disclosed the offer to
shareholders.   

Ferro's decision not to have a Q&A session is inexcusable.  Management clearly
had an expectation that shareholders would have numerous questions regarding the
financial results, the sale of the solar pastes assets and the A. Schulman
proposal and brazenly bypassed their questions without any notice or
explanation.  How can management be held accountable if it refuses to engage in
discussions with shareholders?  What is Ferro trying to hide?  Stating that it
will call shareholders "over the coming days and weeks" does little to engender
a sense of trust that management is willing to seriously consider the concerns
of shareholders or hold itself accountable for its actions.  For the record, we
have not heard from Ferro and await their call.   

*      *      *      *      *

Ferro's recently announced financial results, its failure to engage A. Schulman
regarding its acquisition proposal and its conduct during the earnings call
further highlight the need for immediate shareholder representation on the
Board.  Do not be fooled by the Board's sudden attempts to convince shareholders
that its so called "Value Creation Strategy" will significantly reduce costs and
drive shareholder value.  The incumbent directors' track record of poor
operational, financial and share price performance speaks for itself and, in our
view, calls into question their ability to turn Ferro around and hold themselves
accountable should they fail.  The Committee's nominees, on the other hand, have
the experience and qualifications necessary to generate value for shareholders
and are ready, willing and able to assist the Board with addressing the serious
challenges facing the Company.

 Sincerely,                                                         
                                                                    
 /s/ David A. Lorber          /s/ Jeffry N. Quinn                   
 Managing Member              Chairman and Chief Executive Officer  
 FrontFour Capital Group LLC  Quinpario Partners LLC                


CERTAIN INFORMATION CONCERNING PARTICIPANTS

 

The Shareholder Committee for the Future of Ferro (the "Committee"), consisting
of the Participants (as defined below), has made a preliminary filing with the
Securities and Exchange Commission ("SEC") of a proxy statement and accompanying
proxy card to be used to solicit votes for the election of director nominees at
the 2013 annual meeting of shareholders of Ferro Corporation, an  Ohio 
corporation (the "Company").

THE COMMITTEE STRONGLY ADVISES ALL SHAREHOLDERS OF THE COMPANY TO READ THE PROXY
STATEMENT AND OTHER PROXY MATERIALS AS THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION.  SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO
CHARGE ON THE SEC'S WEB SITE AT  HTTP://WWW.SEC.GOV.  IN ADDITION, THE
PARTICIPANTS IN THE PROXY SOLICITATION WILL PROVIDE COPIES OF THE PROXY
STATEMENT WITHOUT CHARGE UPON REQUEST.   

The Participants in the proxy solicitation are anticipated to be FrontFour
Capital Group LLC ("FrontFour Capital"), FrontFour Master Fund, Ltd. (the
"Master Fund"), Event Driven Portfolio, a series of Underlying Funds Trust (the
"Event Driven Portfolio"), FrontFour Capital Corp., FrontFour Opportunity Fund
Ltd. (the "Canadian Fund"),  Stephen Loukas,  David A. Lorber,  Zachary George,
Quinpario Partners LLC ("Quinpario"),  Jeffry N. Quinn  and  Nadim Z. Qureshi 
(collectively, the "Participants").   

As of the date hereof, the Participants collectively own an aggregate of
3,708,400 shares of Common Stock of the Company, consisting of 1,111,463 shares
owned directly by the Master Fund, 780,845 shares owned directly by the Event
Driven Portfolio, 198,999 shares owned directly by the Canadian Fund, 887,093
shares owned directly by accounts managed by FrontFour Capital, 700,000 shares
owned directly by Quinpario and 30,000 shares owned directly by  Nadim Z.
Qureshi.

As members of a "group" for the purposes of Rule 13d-5(b)(1) of the Securities
Exchange Act of 1934, as amended, each of the Participants may be deemed to
beneficially own the shares of Common Stock of the Company owned in the
aggregate by the other Participants.  Each of the Participants disclaims
beneficial ownership of such shares of Common Stock except to the extent of his
or its pecuniary interest therein.

Contact:
FrontFour Capital Group LLC
68 Southfield Avenue
Two  Stamford Landing, Suite 290
Stamford, CT  06902
203-274-9050

 

SOURCE  FrontFour Capital Group LLC

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