K+S CEO Incurs Investor Backlash for $3.3 Billion Share Rout

  • Investors question CEO's refusal to talk to Potash on takeover
  • Steiner breached `fiduciary duty' to stakeholders, Acatis says

K+S AG Chief Executive Officer Norbert Steiner is facing the wrath of investors who have seen 3 billion euros ($3.3 billion) wiped from the German potash company’s market value after refusing to engage in takeover talks with Potash Corp. of Saskatchewan.

“It is understandable that Mr. Steiner hesitated but is not understandable that he refused to engage in serious negotiations,” said Hendrik Leber, a managing partner at Acatis Investment GmbH, which holds a 0.65 percent stake in Kassel, Germany-based K+S. “In my opinion, Mr. Steiner breached his fiduciary duty to the company.”

Fueling investor anger is the 37 percent decline in K+S shares since a July peak, shortly after Potash Corp.’s 41 euro-a-share interest became public. The stock dropped 25 percent on Monday when Potash Corp. said it was withdrawing its 7.85 billion-euro proposal.

The investor backlash has put pressure on Steiner, who will face analysts at a capital markets day on Nov. 12. He may have little to offer them such as share buybacks because K+S is in the midst of its biggest investment in the company’s 126-year-history: a C$4.1 billion Legacy potash project in Canada. Also, potash prices have dropped as farmers earning less for their crops buy less fertilizer.

Steiner, now in his ninth year in charge, rejected the Potash proposal after saying the offer price didn’t reflect the fundamental value of K+S, and there was no basis for negotiations. Company spokesman Michael Wudonig reiterated that stance in an e-mail Thursday and said share buybacks aren’t currently on the agenda due to investment requirements related to the preparation of Legacy.

Chart showing how K+S shares have suffered since takeover offer from Potash Corp.
Chart showing how K+S shares have suffered since takeover offer from Potash Corp.

The asset and wealth management unit of Deutsche Bank AG -- K+S’s second-largest investor, according to Bloomberg data -- was among the investors that had called for Steiner to engage.

K+S stock rose as much as 5.1 percent in Frankfurt today, its biggest jump since Potash Corp. walked away, and was up 4.6 percent at 25.58 euros as of 12:38 p.m.

Challenging Management

Storebrand ASA has almost halved its stake from 0.07 percent previously and would welcome challenges to K+S management, said Espen Furnes, a fund manager at Norway’s largest listed life insurer. Investors have been neglected and the onus is now on Steiner to present a plan on how he’s going to create value faster, he said.

The gap between the current stock price and Potash Corp.’s proposal raises the question of whether management should buy back shares, Uwe Rathausky, who manages one of Acatis’s funds. Such a move was taken by Swiss agrochemical maker Syngenta AG, which sought to appease investors with a $2 billion share repurchase program after turning down a $47 billion takeover approach from Monsanto Co.

“It must be a mouthwatering opportunity in the eyes of management to buy back the companies’ own shares -- a test of K+S’s management quality,” Rathausky said in an e-mail.

Supporters

Not all investors are critical of Steiner. Boris Boehm, a fund manager at Aramea Asset Management in Hamburg, says he believes management did the right thing, especially in light of an “indecent proposal” made by Potash Corp. that guaranteed the executive-board members jobs after the takeover.

“As an employee of K+S, I would feel really bad if the executive got a nice clean package to ensure that he’s okay and that was the reason he agreed” to the takeover, Boehm said by telephone. “The reasons have to be economic reasons and K+S has a plan on how they want to shape the future. I don’t know that they need Potash for that. It’s Potash that has the problem.”

Boehm, who helps manage 2.3 billion euros including K+S shares, distinguishes between investors and speculators, saying that those who only got into the stock because of merger speculation weren’t focusing on the merits of the deal itself and may have misread the market when assessing the likelihood it would go through.

Acatis’s Leber says that while K+S has lost his clients money, the positive side is that the stock is now so cheap that it’s a buying opportunity again.

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