Why Shares of GCP Applied Technologies Are Falling on Tuesday

The board concludes its review without finding a buyer.

Lou Whiteman
Lou Whiteman
Jun 18, 2019 at 11:13AM
Energy, Materials, and Utilities

What happened

Shares of GCP Applied Technologies (NYSE:GCP) were down more than 12% on Tuesday after the construction materials supplier said its board had concluded its strategic review without finding a buyer for the company.

So what

GCP shares got a boost back in February when the company said that hedge fund Starboard Value had taken a 4.6% stake. The board in a letter to shareholders said it would conduct a comprehensive review of the business as well as enact a new cost-cutting plan.

Materials at a construction site.

Image source: Getty Images.

"Comprehensive review" is often read as putting up a "For Sale" sign, but in this case apparently no compelling offer materialized. The company in a letter to shareholders dated June 18, said the review, which was conducted with the assistance of an outside financial advisor, had concluded with the board deciding to go it alone.

Over the course of this review process, the company contacted and engaged with both strategic industry players and private equity investors. However, this process did not result in a transaction that would provide adequate value to our shareholders. Accordingly, the Board has determined that the best opportunity to enhance shareholder value is to pursue the company's stand-alone strategic and financial plan.

Now what

The board did say they remain open to future offers; however, it shouldn't come as much of a surprise that no one stepped up with an offer at a substantial premium. Investors have been worried about the North American housing market slowing. That risk, coupled with tariff-driven increases in raw material costs, has limited near-term growth expectations for GCP and the sector.

GCP, which was spun out of specialty chemicals company W.R. Grace in 2016, appears well positioned to survive any downturn, and should still benefit from the counsel of respected investor Starboard over the long term. But it appears investors hoping for a quick win via a buyout are out of luck.