DEFC14A: Barington Seeks Boardroom Overhaul at Matthews International, Nominates Three Directors

Barington Companies Equity Partners is seeking to elect three nominees to Matthews International Corporation's board, citing concerns over the company's long-term performance and capital allocation.

Summary

• Barington Companies Equity Partners, owning approximately 1.9% of Matthews International's common stock, is soliciting proxies to elect three director nominees at the 2025 annual meeting.
• Barington believes that the current Board of Directors needs fresh perspectives and expertise to enhance long-term shareholder value.
• The firm criticizes Matthews' long-term share price underperformance, poor capital allocation, and uneven execution under the leadership of CEO Joseph Bartolacci.
• Barington highlights the underperformance of Matthews' stock compared to its self-selected peers and the S&P 500 Index over various periods, including Bartolacci's 18-year tenure as CEO.
• The proxy statement outlines Barington's concerns regarding the company's investments, particularly the acquisition of Schawk, Inc. (SGK Brand Solutions) and investments in the Industrial Technologies segment.
• Barington recommends voting for its three nominees: Ana B. Amicarella, Chan W. Galbato, and James Mitarotonda, who they believe will bring valuable experience and accountability to the Board.
• Barington also recommends voting against the advisory vote on executive compensation, arguing that it is not aligned with shareholder interests.
• The annual meeting is scheduled for February 20, 2025, and Barington urges shareholders to use the enclosed GOLD universal proxy card to vote for its nominees.

Sentiment

Score: 3

Explanation: The document expresses strong dissatisfaction with the company's performance and management, indicating a negative sentiment. While Barington presents its case professionally, the underlying message is critical of the current state of affairs.

Positives

• Barington's nominees bring extensive business, financial, and public company board experience.
• The firm's engagement aims to unlock value for shareholders by addressing issues such as capital allocation and executive compensation.
• Barington's recommendations include specific steps for improving the company's operating and share price performance, such as developing the Memorialization business and divesting the SGK Brand Solutions business.
• The proxy statement provides shareholders with a clear alternative to the current board and management.

Negatives

• Matthews International has exhibited prolonged share price underperformance compared to its peers and the broader market.
• The company's capital allocation decisions, including the acquisition of Schawk, Inc., have not yielded satisfactory returns.
• Executive compensation is not adequately aligned with shareholder interests, rewarding management despite declining cash flow.
• The Board's composition is overly entrenched and long-tenured, raising questions about independence and accountability.

Risks

• The Barington Nominees will constitute a minority of the Board and there can be no guarantee that they will be able to implement the actions that they believe are necessary to unlock shareholder value.
• There is no assurance that any of the Companys nominees will serve as directors if all or some of the Barington Nominees are elected.
• The company's investment in dry cell lithium-ion battery manufacturing equipment carries uncertainty due to limited experience in the energy storage market and ongoing litigation with Tesla.
• The EV battery industry is evolving rapidly, with new chemistries and manufacturing technologies continually emerging, and is dominated by well-funded Chinese incumbents with significant excess capacity.

Future Outlook

Barington urges the Company to take steps in the future to declassify the Board to increase accountability to shareholders by having all directors elected on an annual basis.

Management Comments

• Barington believes that Mr. Bartolacci has failed to take full advantage of the tremendous opportunities for long-term value creation available to the Company.
• Barington expressed its dismay at the Company's record of poor capital allocation, uneven execution, and lagging share price performance.
• Barington shared its view that the Board should seek to replace Mr. Bartolacci based on the Company's extended period of poor performance under Mr. Bartolacci's leadership.

Industry Context

The EV battery industry is evolving rapidly, with new chemistries and manufacturing technologies continually emerging. Between 2021 and 2023, cumulative early-stage investment in battery innovation more than tripled to nearly $1.4 billion, with lithium technologies accounting for only 60% of the total. Moreover, the market is dominated by well-funded Chinese incumbents with significant excess capacity.

Comparison to Industry Standards

• The Company's Common Stock (including dividends) has significantly underperformed its self-selected peers and the market as a whole, not just over the past one-, three-, fiveand ten-year periods, but over Mr. Bartolaccis entire 18-year tenure as CEO.
• As of January 2, 2025, directors on the Board have a median tenure of approximately 10 years four years longer than the median director tenure at S&P 500 companies, according to Spencer Stuarts 2024 Board Index.
• The median market capitalization and enterprise value of the Company Peer Group is 170% larger and 100% larger, respectively, than the Companys market capitalization and enterprise value.

Legal Proceedings

• Tesla sued Matthews for allegedly stealing trade secrets related to Tesla's battery-manufacturing process and sharing them with Teslas competitors.
• The lawsuit claims that Matthews owes damages that Tesla conservatively estimates will exceed $1 billion for misusing Tesla trade secrets.

Related Party Transactions

• On December 30, 2022, each of BCEP, Barington Capital Group and Barington Companies Management entered into the 2022 Agreement with the Company, pursuant to which the Company agreed to appoint Barington Companies Management as a consultant to the Company for the term of the 2022 Agreement.
• Pursuant to the 2022 Agreement, the Company paid Barington Companies Management, at the end of each month during the term of the 2022 Agreement, $19,167 for its consulting and advisory services relating to corporate governance and strategic matters, and also reimbursed Barington Companies Management and certain of its affiliates $50,000 for their out-of-pocket fees and expenses incurred in connection with their communication and meetings with representatives of the Board and the Company's management.
• The 2022 Agreement terminated pursuant to its terms on November 1, 2024.

Stakeholder Impact

• The outcome of the proxy vote will significantly impact shareholders, as it will determine the composition of the Board and the direction of the company.
• Employees may be affected by potential changes in strategy and management.
• Customers and suppliers could be impacted by shifts in the company's business focus and operations.

Next Steps

• Shareholders are urged to sign, date, and return the GOLD universal proxy card to vote for Barington's nominees.
• Shareholders can also vote via the Internet or telephone as instructed on the GOLD universal proxy card.
• Barington intends to seek reimbursement from the Company for the expenses it incurs in connection with this solicitation, if successful.

Key Dates

Keywords

proxy, Barington, Matthews International, board of directors, shareholder value, director nominees, capital allocation, executive compensation, annual meeting, corporate governance