Shares of Owens-Illinois (OI) rallied during the Friday session after Atlantic Investment Management sent a letter to the company’s board urging it to sell its European business and use the proceeds to repurchase shares and pay down debt.

WHAT’S NEW:

Atlantic Investment disclosed in a regulatory filing that it had sent a letter to Owens-Illinois saying that, given the “current low valuation” of Owens-Illinois shares and the company’s “vulnerability” to an unsolicited takeover attempt, it urges the company to take a number of actions to “sustainably and dramatically improve OI’s shareholder value.” Atlantic Investment, which owns a 5.93% stake in Owens-Illinois, said that the company should explore the sale of its European business, saying it expects proceeds from such a sale to be in the $3.2B-$3.8B range. The firm said the company should use the sale proceeds to buy back over $1B of company shares and to pay down over $2B of debt. In addition, Atlantic said that Owens-Illinois should initiate a dividend of 15c per quarter and announced that 75% of its annual free cash flow will be used for further share repurchases. As a result, the investment firm noted it believes Owens-Illinois shares could “more than double” to over $40 per share. “We trust that you will do what is right for all shareholders and that you and the Board take control of Ol’s destiny by pro-actively taking action to unlock value as we have proposed,” Atlantic Investment president and CIO Alex Roepers said.

COMPANY RESPONSE:

In response, Owens-Illinois acknowledged receipt of the letter, saying it appreciates the firm’s “support for our management team and operating strategy as affirmed in its letter,” adding that it takes seriously the input of all its shareholders. “Our management team and Board of Directors are continually focused on ways to improve long-term value creation, and as with all shareholder input, we will consider Atlantic’s perspectives in that context,” Owens-Illinois said.

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