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UNITED STATES |
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SECURITIES AND EXCHANGE COMMISSION |
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Washington, D.C. 20549 |
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SCHEDULE 14A |
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Proxy Statement Pursuant to Section 14(a) of |
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the Securities Exchange Act of 1934 |
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Filed by the Registrant o |
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Filed by a Party other than the Registrant x |
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Check the appropriate box: |
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
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HEXCEL CORPORATION |
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(Name of Registrant as Specified In Its Charter) |
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O.S.S. CAPITAL MANAGEMENT LP OSCAR S. SCHAFER & PARTNERS I LP OSCAR S. SCHAFER & PARTNERS II LP O.S.S. OVERSEAS FUND LTD. O.S.S. ADVISORS LLC SCHAFER BROTHERS LLC OSCAR S. SCHAFER PETER J. GRONDIN EDWARD A. BLECHSCHMIDT TIMOTHY D. LEULIETTE JOACHIM V. HIRSCH |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Date Filed: |
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Presentation to
Hexcel
Stockholders
OSS Capital Management LP
April 2008
1
Disclaimer
THIS PRESENTATION IS
FOR
GENERAL
INFORMATIONAL PURPOSES
ONLY. IT DOES NOT HAVE REGARD TO THE SPECIFIC INVESTMENT OBJECTIVE,
FINANCIAL SITUATION, SUITABILITY, OR THE
PARTICULAR NEED OF ANY SPECIFIC PERSON WHO MAY RECEIVE THIS PRESENTATION, AND SHOULD
NOT BE TAKEN AS ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. THE VIEWS
EXPRESSED
HEREIN REPRESENT THE OPINIONS OF O.S.S. CAPITAL MANAGEMENT LP, OSCAR S. SCHAFER
& PARTNERS I LP, OSCAR S. SCHAFER & PARTNERS II LP, O.S.S. OVERSEAS FUND LTD.,
O.S.S. ADVISORS LLC,
SCHAFER BROTHERS LLC, OSCAR S. SCHAFER, PETER J. GRONDIN, EDWARD A. BLECHSCHMIDT,
JOACHIM V. HIRSCH AND TIMOTHY D. LEULIETTE (COLLECTIVELY, THE "PARTICIPANTS"), AND ARE
BASED ON
PUBLICLY AVAILABLE INFORMATION WITH RESPECT TO HEXCEL CORPORATION (THE
"ISSUER").
THIS PRESENTATION
INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. YOU SHOULD BE AWARE THAT ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM
THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. THE PARTICIPANTS ASSUME NO
OBLIGATION TO UPDATE THE FORWARD-LOOKING INFORMATION.
THE PARTICIPANTS
RESERVE THE RIGHT TO CHANGE ANY OF THEIR OPINIONS EXPRESSED HEREIN AT ANY TIME AS THEY
DEEM APPROPRIATE. THE PARTICIPANTS DISCLAIM ANY OBLIGATION TO UPDATE
THE INFORMATION CONTAINED HEREIN.
THE PARTICIPANTS SHALL
NOT BE RESPONSIBLE OR HAVE ANY LIABILITY FOR ANY MISINFORMATION CONTAINED IN ANY SEC
FILING OR THIRD PARTY REPORT. THERE IS NO ASSURANCE WITH RESPECT
TO THE PRICES AT WHICH ANY SECURITIES OF THE ISSUER WILL TRADE, AND SUCH SECURITIES MAY
NOT TRADE AT PRICES THAT MAY BE IMPLIED IN THIS PRESENTATION. ANY
ESTIMATES,
PROJECTIONS AND PRO FORMA INFORMATION SET FORTH IN THIS PRESENTATION ARE BASED ON
ASSUMPTIONS THAT THE PARTICIPANTS BELIEVE TO BE REASONABLE, BUT THERE CAN BE NO
ASSURANCE
THAT ACTUAL RESULTS OR PERFORMANCE OF THE ISSUER WILL NOT DIFFER, AND SUCH DIFFERENCES
MAY BE MATERIAL.
THIS PRESENTATION DOES
NOT RECOMMEND THE PURCHASE OR SALE OF ANY SECURITY. UNDER NO CIRCUMSTANCES IS THIS
PRESENTATION TO BE USED OR CONSIDERED AS AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY. THE PARTICIPANTS CURRENTLY OWN
AN AGGREGATE OF APPROXIMATELY 5.5% OF THE OUTSTANDING COMMON STOCK OF THE ISSUER.
THE
PARTICIPANTS INCLUDE FUNDS AND ACCOUNTS THAT ARE IN THE BUSINESS OF TRADING - BUYING
AND SELLING - PUBLIC SECURITIES. IT IS POSSIBLE THAT THERE WILL BE DEVELOPMENTS IN
THE
FUTURE THAT CAUSE ONE OR MORE OF THE PARTICIPANTS FROM TIME TO TIME TO SELL ALL OR A
PORTION OF THEIR SHARES IN OPEN MARKET TRANSACTIONS OR OTHERWISE (INCLUDING VIA
SHORT
SALES), BUY ADDITIONAL SHARES (IN OPEN MARKET OR PRIVATELY NEGOTIATED TRANSACTIONS OR
OTHERWISE), OR TRADE IN OPTIONS, PUTS, CALLS OR OTHER DERIVATIVE INSTRUMENTS
RELATING
TO SUCH SHARES.
ALL STOCKHOLDERS OF
THE ISSUER ARE ADVISED TO READ THE PROXY STATEMENT AND OTHER DOCUMENTS RELATED TO THE
SOLICITATION OF PROXIES BY THE PARTICIPANTS FROM THE
STOCKHOLDERS OF THE ISSUER FOR USE AT THE 2008 ANNUAL MEETING OF STOCKHOLDERS OF THE
ISSUER BECAUSE THEY CONTAIN IMPORTANT INFORMATION. THE PROXY STATEMENT HAS
BEEN SENT
TO THE STOCKHOLDERS OF THE ISSUER AND IS, ALONG WITH OTHER RELEVANT DOCUMENTS,
AVAILABLE AT NO CHARGE ON THE SEC'S WEB SITE AT
HTTP://WWW.SEC.GOV
. IN
ADDITION, THE
PARTICIPANTS IN THE PROXY SOLICITATION WILL PROVIDE COPIES OF THE PROXY STATEMENT
WITHOUT CHARGE UPON REQUEST.
2
About OSS Capital LP
Founded in Nov. 2001
by Oscar S. Schafer
and Andrew J. Goffe
$ 2.2 billion under management
Long / Short investment partnership
Long-term investment approach
Hexcel stockholders since August 2005
3
Why Hexcel?
Great secular story
Significant barriers to entry
Emerging market and international growth
Margin expansion story-economies of scale
Stock inexpensive
based on peer
performance
4
OSS Capital’s Goals
To enhance the
relevant expertise of the Hexcel Board in
order to give Hexcel senior management more complete
resources to:
Enhance margins
Increase Hexcel’s competitive edge
Operate in a more
efficient, global, and cost competitive
manner
To have
all
stockholders benefit
from Hexcel’s increased
success as the pre-eminent player in composite material
manufacturing
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The Key Issue
Hexcel’s margins are far below its competitors’:
Trailing Twelve Months, millions $
Toray Cytec Hexcel
Composite revenues 693.0 669.7 975.8
Composite operating inc. 154.0 132.3 142.8
% revenues 22.2% 19.8% 14.6%
Hexcel has not
provided a plausible explanation for their inferior margin
performance
OSS Capital believes Hexcel does not fully understand its cost structure
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Margins Consistently Fall Short
Operating Income As % Of Sales
7
The Key Issue, Magnified
An “apples
to apples” margin comparison amplifies the
point:
Toray and Cytec
allocate corporate overhead to their
composite subsidiaries, while Hexcel
does
not
Hexcel had
approximately $50 million of unallocated expenses
in the trailing twelve
months
8
Adjusted Composite Margins
Trailing Twelve Months, millions $
Toray Cytec Hexcel*
Composite revenues 693.0 669.7 975.8
Composite operating inc. 154.0 132.3 142.8
Less 80% of unall. exp. 39.0
Adjusted operating income 103.8
% revenues 22.2% 19.8% 10.6%
*As Hexcel’s composite business is approximately 80% of corporate revenues, assumes 80% pro-rata
allocation of corporate expenses to composite subsidiary
9
Adjusted Margin
Shortfall Is Even
More Dramatic
Operating Income As % Of Sales *
*As Hexcel’s composite business is approximately 80% of corporate revenues, assumes 80% pro-rata allocation of
corporate expenses to composite subsidiary
10
Hexcel’s
margins are consistently and
dramatically below their competitors’
margins.
11
Hexcel’s Analysis Is Misleading
In its April 2008
investor presentation, Hexcel presents misleading
statements about OSS Capital’s nominees:
Hexcel claims Ed Blechschmidt was the CEO of Gentiva for 30 months
Ed was the CEO of Olsten/Gentiva for 4 years
Hexcel claims no aerospace experience evident in Jake Hirsch’s background
At Textron, ~25% of the product overseen by Jake was for aerospace customers
Hexcel claims no public board experience evident in Tim Leuliette’s background
Tim has served on multiple public boards:
Operating Board, Siemens AG
Board of Directors member, Libby Owens Ford
Co-Chairman of the Board, Asahi Tec Corporation
Member of the Board
& Chair of Restructuring Committee, Collins &
Aikman
12
Hexcel’s Analysis Is Misleading
In its April 2008
investor presentation, Hexcel presents a misleading
peer margin comparable analysis:
Hexcel includes multiple customers as its peer group
Most customers are not peers
Hexcel’s direct peers are Cytec and Toray
Cytec is a customer and peer
However, a comparison of total corporate margins is misleading
Cytec is a
conglomerate and the proper approach is to compare Cytec’s
composite subsidiary with Hexcel’s composite subsidiary
Hexcel includes low margin composite “peers” Gurit and SGL carbon in its analysis
But Hexcel
conveniently excludes Mitsubishi Rayon which has composite margins
north of 25%!
13
Hexcel’s Analysis Is Misleading
In its April 2008
investor presentation, Hexcel presents weak
explanations for sub-peer performance:
US health care costs
Foreign exchange
Investment for growth
Wage inflation
Raw material costs
Cost pressures are
not unique; competitors face these same challenges and they do
not have the same scale as Hexcel!
14
No matter how the
company is analyzed
and no matter what qualitative adjustments
or explanations are made,
Hexcel’s
margins
in the composite business are just too low.
Hexcel is underperforming and needs help.
15
The Value Gap
If Hexcel realized
composite operating margins similar
to its peers, its composite operating income could be
$60+ million higher
Trailing Twelve Months, millions $
Toray Cytec Hexcel Hexcel Adj.
Composite revenues 693.0 669.7 975.8 975.8
Composite operating inc. 154.0 132.3 142.8 204.9
% revenues 22.2% 19.8% 14.6% 21.0%
16
Bridging The Value Gap
At $60 million in additional EBIT:
Current EV/EBIT multiple = 17.6x TTM EBIT
Additional equity value = $1.1 billion
Shares outstanding = 95.8 million
This represents a value gap of $11.50 per share.
This represents a value gap of $11.50 per share.
17
The Aerospace Opportunity
In our view:
The secular aerospace boom presents a huge opportunity
Hexcel’s
depressed profitability may hinder the company’s
ability to generate enough cash to fully support the
development of next generation composite aircraft
Hexcel should not be
a second tier player on next
generation aircraft…they should be the dominant player!
Hexcel must focus
intensely on developing an
effective
global footprint with
industry
leading
profitability and
execution
18
Why These Nominees?
The three business
executives that OSS
Capital has nominated are committed to
these priorities and have the expertise to
help
19
Meet The Nominees
All three nominees
possess successful manufacturing
backgrounds that are international in scope
Each has demonstrated
success in operating in cost
competitive environments
Each enhances the
Hexcel Board’s ability to move the
company to greater operating efficiency and profitability
20
21
Ed Blechschmidt
Proven CEO experience in expanding shareholder value
Novelis ($10 billion worldwide aluminum company), 2006-2007
Gentiva ($1.5 billion healthcare company), 2000-2002
Olsten Corp. ($5 billion worldwide conglomerate), 1998-2000
Diverse public board experience
Manufacturing, Technology, Healthcare
Committee Chair experience (Sarbox, CD&A, Special)
Certified Financial Expert
21 years at Unisys, including CFO
Led financial restatement at Healthsouth Corp.
Proven audit committee experience with the Big 4
Offered seat on Hexcel Board
21
Joachim “Jake” Hirsch
More than 30 years of
international manufacturing experience in Europe, Asia,
and North America
Broad industry
experience in automotive, industrial, aerospace, and private
equity industries
Significant turn-around experience as a CEO
Deep knowledge of
plant level operations and manufacturing best
practices from tenure at Textron and Teksid Aluminum
Successful
negotiations with unions both in Europe and North America,
resulted in wage concessions and peaceful plant closings
Thorough understanding of corporate governance including SOX requirements
Experience on numerous non-public boards in both Europe and North America
22
23
Timothy Leuliette
Experienced CEO of
multi-billion enterprises with broad based, global
business and corporate governance expertise:
Turn-around experience: ITT Industries, Penske Corp.
Corporate build-up: Siemens A.G.
Private equity build-up and exit: Metaldyne/Asahi Tec
First non-German to
become a corporate officer and sit on an operating
board at Siemens A.G.
First American to be
CEO of a large, independent, publicly listed
Japanese company
Chairman of Detroit Branch of Federal Reserve Bank of Chicago
Board assignments in
troubled and/or challenged situations: Libby-
Owens-Ford, Collins & Aikman
23
Conclusion
OSS Capital’s
objective is to elect these three highly qualified
nominees in order to facilitate Hexcel’s ability to:
Increase margins
Enhance profitability
Maximize stockholder value
Vote the white proxy card for a more qualified Board at
Hexcel
24
Conclusion
Thank you, we appreciate your support
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