Activist Hedge Fund Increases Stake in A. Schulman, Inc. (SHLM)

From Insider Score: An institutional investor who threatened a proxy battle against A. Schulman, Inc. (SHLM), and eventually forced the plastics and resin maker to buy back stock, has increased its stake in the company. Barington Capital, represented on SHLM's board by its president, James Mitarotonda, has bought 94.3K shares of SHLM in a range of $23.97 to $24.66 since May 3rd.

The firm's latest buy came yesterday at the low end of the range, and it increased Barington's stake in SHLM to 1.289M shares, or a little more than 4%. The buys also represent a reversal for Barington, which according to SEC filings, sold 283.9K shares of SHLM during the first quarter.

Last June, Barington joined forces with other hedge funds, including Ramius Capital (via its Starboard Value & Opportunity Fund) and Israel Englander's Millennium Management, to rattle SHLM's cages. The firms eventually built a combined 8.8% stake in SHLM, saying the stock was undervalued and that SHLM should put itself up for sale. The group also threatened a proxy fight aimed at installing representatives on SHLM's board.

In October 2005, SHLM reached an agreement with the investor group, which as a result, withdrew its notice of intent to nominate directors. SHLM agreed to consummate a self-tender offer to repurchase 8.75M shares at a price no less than $20.00 per share. SHLM's original intent was to complete the self-tender offer by mid-December 2005, but the company had until the end of April 2006 to do the deed. In the interim, SHLM announced a $350M financing agreement on March 1st, and the proceeds were earmarked for the self-tender offer. As a result of the agreement, Mitarotonda, who made waves over the past few years with cage rattling at Register.com, was appointed to SHLM's board.

SHLM finally did complete the self-tender offer last month, though shareholders only tendered a little more than 2M shares, selling them for $24.00 per share. To make up the difference, SHLM said it would repurchase 6.75M shares on the open market, though the company did not give a timeline for such buys. Regardless, as a result of the self-tender offer and share repurchase program, SHLM is on track to cut its outstanding share count by 30%.

Shares of SHLM have responded to all of the fighting, rising to an 11-year high of $25.83 on February 10th, and trading just shy of that mark again last week. At its current price, the stock is up about 43% over the past 52 weeks. An early April, fiscal Q2 (ended February 28th, 2006) earnings report has also helped SHLM's fortunes, as the company reported a 6% rise in revenues to $371.2M. Earnings fell by more than -65%, to $3.9M, or 12 cents per share, but that was the result of one-time charges related to debt retirement. More importantly, adjusted earnings came in at $7.5M, or 24 cents per share, up from $6.8M, or 22 cents EPS, a year earlier.

"Despite historically high cost pressures due to energy prices, the gross profit margin of 14.4% for the 2006 six-month period was up slightly from last year's margin of 14.2%," said Terry Haines, SHLM's president and chief executive officer. "Earnings in our North American operations were in line with our expectations and better than 2005 for the six-month period."