Omega Protein starts dividend program

Omega Protein starts dividend program

Omega Protein has come through the tumult of a proxy fight and has announced a plan to distribute some of the cash generated by the business to shareholders via dividends. A line in the announcement gave the impression the company’s management has finally acquiesced in the criticism by an activist investor of its recent strategy.

In the past the company has used these revenues to build out its human nutrition business.  But that strategy led to a protracted proxy fight that ended with the election of a board member whose candidacy was backed by activist investor Wynnefield Capital.

For years Omega Protein’s management had sought ways to reduce the natural revenue fluctuations that come with harvesting a natural resource.  The company’s core business is catching menhaden, a herring-like forage fish species, in the Gulf of Mexico and in and around Chesapeake Bay. The numbers of fish naturally varied, as did their oil content. For many years the company concentrated on turning these fish into fish meal and fish oil products that were sold primarily as animal feed.

A number of years ago the company’s management started to look for ways to derive higher value products from that raw material stream.  The company first started refining an omega-3 oil for supplements from its menhaden oil.  Then it used some of the cash generated by the fishing operations to purchase human nutrition businesses, including botanical ingredient supplier Cyvex, Wisconsin Specialty Protein, a whey protein manufacturer, and Bioriginal, a lipid ingredient specialist that sells omega-3 oils, coconut oil ingredients and other products.  

Wynnefield’s main objection to this strategy was that the move into human nutrition segments was mismanaged, and the resulting company was an assortment of ill-fitting parts.  Nelson Obus, principal of Wynnefield, claimed that Omega Protein had spent about $150 million on these acquisitions, and because of market and raw material price fluctuations, increased competition and other factors, the value of those investments had sunk to about $100 million. Obus was of the opinion that Omega Protein’s focus should more properly be placed on improving the core business of fish processing for the animal feed markets. Shareholders seemed to agree with Wynnefield, and elected the candidate backed by the investment firm. There has been no word yet on what that might mean for the future structure of the company. Selling off the human nutrition divisions is one option that could be on the table.

Forward looking statements

In the announcement about new dividend plan, in the “forward looking statements” section that is required under securities law, the company had this to say about the risks of its human nutrition strategy: “The Company's expectations regarding its human nutrition segment, its future prospects and the dietary supplement market or the human health and wellness segment generally, proving to be incorrect.”

That wording struck a securities lawyer Scott Schwartz as odd. Schwartz, a partner in the Manatt, Phelps and Phillips law firm, said the wording of that clause is unusually direct.

“I would say this is not common. It seems here they are making a statement implying that something they thought in the past was wrong. And I wouldn’t advise a client to use the word ‘incorrect;’  I’d say something more like ‘Our estimates relating to the nutraceutical sector may prove to be overstated’ or something similar,” Schwartz told NutraIngredients-USA.

“This is not something you would usually put into a forward-looking statement; it is almost like a correction. It’s almost a signal of what the board thinks about that investment,” he said.

Ben Landry, director of public affairs for Omega Protein, disagreed that the statement signaled anything unusual. The company has referenced the human and animal nutrition segments in previous forward looking statements, he said.

“We believe that our forward-looking statements address potential risks pertinent to both our animal and human nutrition segments, and should not be interpreted as commentaries on the current state of either business,” he said.

Landry also said the new dividend program does not necessarily signal a shift in overall corporate strategy.

“The initiation of a quarterly dividend reflects our confidence in Omega Protein’s long-term outlook,” he said.

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