(Bloomberg) -- Auto supplier Tenneco Inc. is facing the threat of a proxy battle with an activist investor who has sent a sharply worded letter to directors urging them to sell part or all of the company.
Dan Ninivaggi, who used to run Icahn Automotive Group for billionaire Carl Icahn, outlined his demands in a letter to Tenneco’s board on Jan. 6. He calls for half of Tenneco’s 10 directors to be replaced at the company’s next annual meeting. And he pressed for the supplier to either raise cash for debt payments by auctioning off its aftermarket-parts unit, or put the entire company up for sale.
It’s unclear how much sway the letter will have with Tenneco, which declined to comment. Ninivaggi won’t say how much stock he holds and acknowledged in a phone interview that he and his investment firm, Protean Services LLC, will need other shareholders with larger positions to band together for a proxy battle. Icahn, who couldn’t immediately be reached for comment, is the top holder with a 9.9% stake.
Tenneco shares fell 8% to $10.16 as of 1:53 p.m. Thursday in New York and have plunged more than 22% so far this year.
Ninivaggi’s letter is dated Jan. 6. The following day, Tenneco announced the departure of Roger Wood as co-chief executive officer and warned of ongoing challenges affecting plans to break up the business into two standalone companies. Shares in the maker of shocks, struts and mufflers plunged 20% at the close Wednesday, their biggest drop since May 9. The stock fell 52% last year.
“Tenneco is one of those few companies that, over its entire history, has never created a penny of shareholder value,” Ninivaggi wrote in the letter, a copy of which he shared with Bloomberg News. “I believe there would be strong shareholder support were I or another shareholder to launch a proxy contest.”
Ninivaggi, who wants a seat on the board for himself, has spoken with multiple Tenneco shareholders and has some backing for his initiatives, he said in an interview. He hasn’t yet talked to Icahn’s camp because he said the billionaire has agreed to a standstill until April. Icahn can sell shares but can’t take action against the board, Ninivaggi said.
Icahn sold parts maker Federal-Mogul LLC to Tenneco in April 2018 for $5.4 billion. When the deal was done, the plan was to combine the two companies to gain size and scale in its powertrain unit and separately in DRiV, its business that sells replacement components including shocks, struts, brake and emissions parts. The merger was expected to unlock value by taking steps such as a spinoff of DRiV.
But that hasn’t happened, and Ninivaggi complained in the letter that management hasn’t been clear what other options it’s exploring to enhance shareholder value and pay down its $5.6 billion debt load. He said the time is right for DRiV to be split out so it can consolidate other aftermarket parts businesses and gain more scale.
Icahn disclosed owning about 5.7 million shares in October 2018, when the stock traded around $42, making his initial investment worth roughly $237 million. The value of Icahn’s stake of Class A stock has dropped by $175 million based on Tenneco’s closing share price of $11.05 on Wednesday. He also owns about 20.7 million Class B shares, which are priced the same. Based on that Jan. 8 closing price, Icahn’s total investment in Tenneco is now worth about $292 million, a decline of $816 million.
Ninivaggi has a history in Tenneco’s business. He was CEO of Icahn Enterprises from 2010 to 2014, then led Federal-Mogul until 2017, when he left to manage Icahn Automotive, which runs auto-repair chains including Pep Boys and AutoPlus.
He supported the plan Tenneco had when the company acquired Federal-Mogul, but said current management has run the company poorly. “Tenneco has been a serial underperformer for many years,” Ninivaggi wrote. “Alternatives must be aggressively pursued.”
(Updates from fourth paragraph with shares in trading Thursday)
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