Report: Activist Investor Urges MRC Global to Explore Sale - Modern Distribution Management

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Report: Activist Investor Urges MRC Global to Explore Sale

Engine Capital reportedly said the PVF distributor could net $14 to $18 per share in a sale as a premium to its current stock price.
MRC Global 3Q 2023 sales

An Oct. 16 report from Bloomberg stated that Engine Capital, an active investor for pipes, valves and fittings distributor MRC Global, is urging the publicly-traded company to consider selling to a private buyer.

With $3.4 billion in 2022 revenue, MRC Global was No. 15 on MDM’s 2023 Top Industrial Distributors List and No. 3 for top PVF distributors.

Bloomberg reported that Engine Capital owns approximately a 4% stake in MRC Global, citing a person with knowledge of the matter.

The news outlet detailed a letter to investors from Engine Capital stating that the hedge fund views MRC Global’s stock as deeply undervalued and that the Houston-based distributor could benefit from a private buyer that is less concerned about volatility and mark-to-market risks.

The letter said MRC Global could net $14 to $18 per share in a sale, which would represent a premium to its current stock price.

Bloomberg elaborated that the letter said that MRC’s shareholder returns “trail relevant benchmarks and peers.”

In a statement sent to Bloomberg, an MRC Global representative wrote: 

“At MRC Global, we’re focused on driving shareholder value every day by growing our businesses, creating capital efficiency, increasing cash flow and profitability, and 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.”

MRC Global is scheduled to share its 2023 third quarter financial results on Nov. 7 after market close.

Engine Capital declined to provide a comment to Bloomberg.

MRC Global shares rose 3.4% on Oct. 18 at 12:11 pm ET in New York Trading, which Bloomberg noted gives the company a market value of approximately $870 million, and that the company’s stock has fallen about 11% throughout 2023. 

On April 24 of this year, MRC Global announced its intention to refinance in full its $295 million senior-secured term loan, scheduled to mature in September 2024. Immediately after, an affiliate of Cornell Capital — the sole holder of MRC’s 6.5% Series A Convertible Perpetual Preferred Stock — filed a lawsuit to prevent that refinancing. Two days later, MRC announced it had postponed the refinancing effort.

“We believe it would be a lot easier for the board to pay Cornell what it wants in the context of a successful transaction that would allow shareholders to simultaneously get fair value for their shares,” Engine Capital said in the letter, according to Bloomberg. “This path is vastly superior to the board’s alternative of keeping the company public, having to potentially litigate the issue with Cornell and then engaging in M&A that is introducing significant new risks and is unlikely to create shareholder value given MRC’s high cost of capital.”

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