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Caesarstone Saga Continues, May Be Resolved

Posted on 17 December 2015 by cradmin

Last August, we reported one of the biggest financial-news stories  of the year related to the countertop industry, concerning the sudden plummet of Caesarstone stock from a high of $72.01 at the end of July to $49.59 on August 6. Unfortunately, the Caesarstone saga has continued over these past few months, and it still seems to be far from an ultimate resolution.

During the intervening time, Caesarstone stock prices fell even further to a 52-week low of $28.92 on September 29. Since then, a partial recovery has been made, but the stock continues to struggle to break the $40 mark, and no one is quite sure if it will ever regain its previous value in the $60 to $70 range.

Caesarstone Q3 Financials Released

Caesarstone officially released its financial statement for the third quarter of 2015 on November 4. According to the statement, revenue experienced a year-to-year increase of 11 percent to a record-setting $136.8 million. This growth was mostly driven by sales in the U.S. and Canada, which grew by 22.2 percent to $61.7 million and 16.9 percent to $19.8 million, respectively.

“We are pleased with our results in the third quarter, which demonstrate the continuing strength of our brand and business around the world,” said Yosef Shiran, CEO of Caesarstone. “We are executing well, driving growth despite significant foreign-currency headwinds. We are also continuing to innovate, launch new products, expand our infrastructure and enhance our competitive edge.”

Other items of interest in the third-quarter financial statement are as follows:

  • Gross margin fell year-to-year from 43.7 percent to 39.5 percent.
  • Operating expenses increased from $22.7 million last year to $29.4 million, partially because of a $4.7 million expense for silicosis claims not covered by the company’s insurance.
  • Last year’s $1 million finance income dropped to become a $100,000 expense.
  • Net income per share fell to $0.56 from $0.75 in the previous year.
  • Expected revenue for 2015 is $497 million to $502 million.

Kibbutz Issues Proxy Contest

Shortly after the third-quarter financials were released, Kibbutz Sdot-Yam, the founder and largest shareholder of Caesarstone stock, initiated a proxy contest to replace two of the board of directors’ nominees for upcoming board elections with their own handpicked candidates: Yitzhak Sharir and Ammon Dick.

Caesarstone responded, saying the company was “surprised and disappointed” by the news. Caesarstone also stated that it believes Kibbutz is seeking to control the board even though the group sold nearly $300 million in shares, reducing its controlling stake in the company to 32.4 percent. The company said that it is exploring all options to enhance shareholder value and strengthen its leadership position in the quartz-surfaces market and advised shareholders against returning or signing any proxy cards or voting instructions they may have received from Kibbutz.

Caesarstone Management Vs. Kibbutz

On November 18, Caesarstone management hosted an investor presentation to discuss the proxy contest, and Kibbutz issued a letter in response to the presentation five days later, refuting the claims of Caesarstone management and urging all shareholders to elect its nominees to the board of directors.

According to the letter, Caesarstone management claims Kibbutz is trying to claim control over the board of directors and that Kibbutz’s motives are in conflict with the interests of public shareholders. Kibbutz states that the group voluntarily abdicated the chair, which it had held since the initial IPO to ensure the board remained independent, and even if the two members it sponsors are elected, the group would still only hold three of the nine seats on the board. In addition, Kibbutz points out that the majority of the group’s assets are invested in Caesarstone, and its interests are simply to grow the company and maximize shareholder value. Currently, Caesarstone stock accounts for 90 percent of the group’s equity.

Another point of contention is that Caesarstone management claims to have suggested and introduced Ronald Kaplan, a well-respected U.S. business executive, to the nominating committee. Kibbutz, however, states that it independently found Kaplan through JP Morgan. Kibbutz believes that Kaplan, Sharir and Dick will bring “meaningful and much-needed improvement” to the board of directors. In a new response letter, Caesarstone capitulated, saying Kibbutz is correct in that the group found Kaplan, and management is appreciative of Kibbutz’s support on this matter.

Caesarstone also claims that the company holds strong practices for corporate governance, but Kibbutz refutes this, stating that the board is forbidden to meet without the CEO present and several members are unduly influenced by the CEO, compromising their independence. In addition, Kibbutz claims that management’s nominees to the board are less than independent.

Caesarstone Refutes Kibbutz

In yet another response from Caesarstone management, Kibbutz’s claims are refuted as utterly false. Highlights of this letter are as follows:

  • If Kibbutz’s new nominees are elected, the board will include five directors with ties to the group.
  • The new nominees are not completely independent of the group.
  • Caesarstone management has been completely honest about the independence of its nominees.
  • The CEO of Caesarstone does not wield undue influence over board meetings and agendas.

Board Elections Held on December 3

When board elections were held on December 3, Kibbutz found that neither of its two candidates received seats. In a statement to the press, the group thanked shareholders for their “time, attention and interest. Kibbutz also said the group is ready to work with Caesarstone management and fully cooperate with the new board.

Eleven days after elections, Caesarstone stock was reevaluated by seven of the eight ratings firms currently covering the company. Of the eight, one has rated the stock as sell, two have issued hold ratings and four have rated the stock as buy, including JP Morgan.

It appears that this brings the Caesarstone saga to a close, although the company’s focus on celebrity endorsements and leveraging its agreement with Ikea, instead of including the fabricator as one of its top priority outlets still seems to be an issue, at least with some of the fabricators we have spoken with, but we here at CountertopResource.com will stay abreast of the situation should tensions rise again.

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