SCHEDULE 13D/A: Activist Investor Ned L. Sherwood Escalates Battle for Control of Barnwell Industries, Citing Shareholder Rights Plan as Entrenchment Tactic

Activist investor Ned L. Sherwood, holding nearly 30% of Barnwell Industries, announced his intent to launch a proxy fight after the company adopted a shareholder rights plan he claims is designed to entrench current management and prevent his efforts to enhance shareholder value.

Summary

• Ned L. Sherwood and his affiliates (MRMP-Managers LLC and Ned L. Sherwood Revocable Trust) beneficially own 3,006,033.13 shares of Barnwell Industries Inc. (BRN), representing approximately 29.90% of the company's outstanding common stock.
• The Reporting Persons' ability to purchase additional shares expired on January 21, 2025, and standstill provisions from a 2023 cooperation agreement are set to expire in early February 2025.
• Barnwell Industries announced a shareholder rights plan on January 27, 2025, which the Reporting Persons assert is a "poison pill" specifically aimed at them to prevent "creeping control" and entrench current management.
• Despite the Reporting Persons stating they have no current intent to engage in a control transaction, they intend to launch a proxy solicitation to elect their director nominees at the next annual meeting if the company continues to reject their proposals.
• Ned L. Sherwood claims the current management, specifically Messrs. Kinzler and Grossman, are engaged in "self-enrichment," citing over $10.3 million in aggregate compensation for them and a 40% decline in BRN's stock price since his initial stake in 2012.
• Sherwood also criticizes the company's use of its pension plan to purchase 413,000 shares as of September 30, 2024, and the engagement of expensive law firm Skadden Arps for the shareholder rights plan, arguing these actions are not in the best interest of shareholders.
• Sherwood claims to have the support of at least 10% of other BRN shareholders, potentially bringing total voting support for his efforts to approximately 40% of the company's shares.

Sentiment

Score: 3

Explanation: The document reflects a highly negative sentiment from the activist investor towards the company's current management and board. It details significant disagreements, accusations of self-enrichment, poor stock performance, and the adoption of a 'poison pill' as an entrenchment tactic. The overall tone is confrontational and critical, indicating a deteriorating relationship and an impending proxy battle.

Positives

• Ned L. Sherwood, the activist investor, has a track record of generating a 40% annual net return for his investors over a forty-year private equity career.
• The Reporting Persons' stated intention is to "put a functioning board in place in an effort to grow shareholder value for BRN shareholders."
• Ned L. Sherwood claims to have garnered support from approximately 10% of other BRN shareholders, potentially bringing total support for his efforts to at least 40% of the company's shares.

Negatives

• Barnwell Industries' stock price is down over 40% since Ned L. Sherwood's initial stake in 2012.
• The company adopted a shareholder rights plan on January 27, 2025, which the Reporting Persons claim is designed to prevent "creeping control" by a 30% shareholder and entrench current management, specifically targeting the Reporting Persons.
• Messrs. Kinzler and Grossman are accused of "self-enrichment," having received over $10.3 million in aggregate compensation, which the Reporting Persons contrast with the company's declining stock performance.
• The company allegedly used its pension plan to purchase 413,000 shares as of September 30, 2024, which the Reporting Persons view as an attempt to bolster management's position and further entrench themselves.
• Barnwell Industries engaged Skadden Arps, described as one of the most expensive law firms, to implement the shareholder rights plan, a cost that the 30% shareholder Ned L. Sherwood deems imprudent given the company's approximately $18 million market capitalization.
• Concerns were raised about corporate governance, specifically regarding Ken Grossman's 2023 director compensation of $183,374 being nearly equivalent to CEO Craig Hopkins' compensation of $198,776.
• The "Special Committee" of the Board rejected all proposals by the Reporting Persons, leading to the current conflict.

Risks

• **Proxy Fight**: The Reporting Persons intend to make a filing with the SEC of a proxy statement and accompanying proxy card to solicit votes for the election of director nominees at the next annual meeting of shareholders, indicating a potential costly and disruptive proxy contest.
• **Legal Costs**: The company's engagement of an expensive law firm (Skadden Arps) for the shareholder rights plan, and the potential for further legal expenses related to the proxy fight, could significantly impact the company's financial resources.
• **Management Entrenchment**: The adoption of the shareholder rights plan is viewed by the Reporting Persons as a tactic to entrench current management, which could hinder efforts to improve corporate governance and shareholder value.
• **Shareholder Discontent**: A significant portion of shareholders (at least 40% including the Reporting Persons) are reportedly unhappy with current management and board actions, which could lead to ongoing internal conflict and instability.
• **Uncertainty of Shareholder Support**: While the Reporting Persons claim 40% support, they acknowledge that other shareholders are not part of a group and could sell or change their views, making the outcome of a proxy vote uncertain.
• **Fiduciary Duty Concerns**: The Reporting Persons allege that certain directors (Kinzler, Grossman, Horowitz) may not be acting in accordance with their fiduciary duties by using company funds for actions perceived as self-enriching or entrenching.

Future Outlook

The Reporting Persons intend to file a proxy statement and accompanying proxy card with the SEC to solicit votes for the election of their director nominees at the next annual meeting of Barnwell Industries shareholders, should the Company continue to refuse their proposed nominations. They aim to put a functioning board in place to grow shareholder value and prevent what they perceive as continued self-enrichment by current management. The Reporting Persons are seeking to garner support from over 50% of shareholders to assure victory in the upcoming proxy contest.

Management Comments

• "The only intention of the Reporting Persons is to put a functioning board in place in an effort to grow shareholder value for BRN shareholders."
• "The Reporting Persons are not interested in allowing the path of self-enrichment to the benefit of Messrs. Kinzler and Grossman to continue."
• "Make no mistake, while they tell you the purpose [of the shareholder rights plan] is to protect you, the shareholders, from me primarily to stop me from buying more shares its only purpose is to entrench the current, ineffective management team."
• "Over my forty year private equity career, I generated a positive 40% annual net return for my investors."
• "As a 30% shareholder, I certainly don't approve of spending Company funds with a firm of this caliber and expense and I don't believe many of the non-Kinzler/Grossman shareholders do as well."
• "It is my opinion that, if the Kinzler/Grossman family shareholders want to oppose me, they should do it with their personal funds not company money (30% of which I view as mine)."
• "Directors are bound by fiduciary duties, like their Duty of Care and Duty of Loyalty, to act on behalf of the company and all shareholders. Hiring one of the most expensive law firms in the world to draft and enact an entrenching and enriching poison pill shareholder rights plan does not demonstrate these fiduciaries acting as appropriate stewards of Company funds."

Industry Context

This filing highlights a classic case of shareholder activism, where a significant investor seeks to influence corporate strategy and governance due to perceived underperformance and management entrenchment. The adoption of a 'poison pill' shareholder rights plan by the company is a common defensive tactic employed by boards to deter hostile takeovers or activist campaigns, often leading to escalated conflicts like proxy fights. The activist's focus on executive compensation, stock performance, and the use of company funds for defensive measures aligns with broader trends in corporate governance where institutional investors and activist funds increasingly scrutinize board accountability and capital allocation.

Comparison to Industry Standards

• Ned L. Sherwood highlights his personal track record of generating a "positive 40% annual net return" for his investors over a forty-year private equity career, implicitly contrasting this with Barnwell Industries' stock performance, which is down over 40% since his initial stake in 2012.
• The document does not provide specific comparable companies or projects for direct financial metric comparison, but the activist's critique of executive compensation (over $10.3 million for Kinzler and Grossman) and the use of an expensive law firm (Skadden Arps) for a company with an approximately $18 million market capitalization suggests a perceived deviation from prudent industry spending standards for a company of its size and performance.
• The activist's proposal that both sides use personal funds for the proxy fight, with the winner reimbursed, is an unusual but direct challenge to the common industry practice of companies using corporate funds for defense in such disputes.

Corporate Governance

Related Party Transactions

• The Reporting Persons allege that Ken Grossman's brother's legal firm, Skadden Arps, was engaged by Messrs. Kinzler, Grossman, and Horowitz to implement the shareholder rights plan, raising concerns about potential related-party influence on company spending.

Stakeholder Impact

• **Shareholders**: Directly impacted by the company's stock performance (down over 40%), the adoption of the shareholder rights plan (which could dilute their voting power or make a change of control more difficult), and the potential for a costly proxy fight that could divert company resources. The Reporting Persons aim to benefit shareholders by improving governance and value.
• **Management/Board**: The current management and board members (Kinzler, Grossman, Horowitz) are directly challenged, facing accusations of self-enrichment and entrenchment, and are the target of the impending proxy fight.
• **Employees**: While not directly mentioned, a prolonged corporate governance dispute and potential changes in leadership could create uncertainty for employees. The use of the company's pension plan to buy shares is also noted.
• **Creditors/Suppliers**: Less directly impacted by this specific filing, but prolonged instability or significant legal costs could indirectly affect the company's financial health and ability to meet obligations.

Next Steps

• The Reporting Persons intend to file a proxy statement and accompanying proxy card with the SEC to solicit votes for the election of director nominees at the next annual meeting of shareholders.
• The Reporting Persons are actively seeking additional shareholder support, encouraging shareholders to email their support to dumpkinzler@gmail.com, aiming for over 50% of the vote.
• The standstill provisions in the cooperation agreement are set to expire in early February 2025, potentially opening up further actions by the Reporting Persons.
• The Reporting Persons suggest holding directors accountable for their conduct, "whether at the ballot box or otherwise."

Key Dates

Recommendation

Keywords

Barnwell Industries, BRN, Ned L. Sherwood, Schedule 13D, Shareholder Activism, Proxy Fight, Shareholder Rights Plan, Poison Pill, Corporate Governance, Beneficial Ownership, Management Compensation, SEC Filing, Investment Management, Shareholder Value