UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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GENCORP INC.
(Name of Registrant as Specified In Its Charter)
PIRATE CAPITAL LLC
JOLLY ROGER FUND LP
JOLLY ROGER OFFSHORE FUND LTD
JOLLY ROGER ACTIVIST PORTFOLIO COMPANY LTD
MINT MASTER FUND LTD.
THOMAS R. HUDSON JR.
DAVID A. LORBER
TODD R. SNYDER
ROBERT C. WOODS
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PIRATE CAPITAL LLC PROXY
SOLICITATION -- GENCORP INC.
For Shareholder Representation
and a Vote in the Boardroom
March 2006
AGENDA - MAXIMIZE LONG TERM SHAREHOLDER VALUE
It is time for shareholders to have representatives in the boardroom who are
nominated by shareholders for the purpose of, and who are committed to, working
for shareholders to address the following:
o PROMOTING THE ACCOUNTABILITY OF SENIOR MANAGEMENT
o ADVOCATING CORPORATE GOVERNANCE IMPROVEMENTS
o ENCOURAGING AND OVERSEEING EFFORTS TO MAXIMIZE SHAREHOLDER VALUE
Our nominees, given their strong backgrounds, would bring valuable insights to
the Company that would help strengthen strategic relationships and enhance the
long term value of GenCorp. Our nominees will address the following:
o MANAGEMENT'S INABILITY TO MEET PROJECTED TARGETS AND STATED GOALS
o PERSISTENT RESISTANCE OF CORPORATE GOVERNANCE REFORM
o MANAGEMENT'S CONTINUED RELIANCE UPON "HOPE" AS A VALUE CREATING
STRATEGY
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MISSED PROJECTIONS AND GOALS
IN OUR VIEW MANAGEMENT HAS LOST CREDIBILITY THROUGH ITS CONTINUED INABILITY TO
MEET PROJECTED TARGETS AND DIVEST ASSETS AT ANTICIPATED PRICES. WE BELIEVE SUCH
MISSTEPS ARE THE RESULT OF POOR MANAGEMENT AND FALSE HOPE.
1. THE DIVESTITURE OF GDX AUTOMOTIVE
o In the second quarter of fiscal 2004, the Company announced its
intention to divest its GDX Automotive business and, in connection
with the proposed sale, took a charge of $261 million, writing down
the value of the related assets to $165 million, representing the
value that the Company believed the assets to be worth.
o During the third quarter of fiscal 2004, the Company sold this
division for $147 million, $18 million below the Company's projected
value, leading to an additional $18 million write-down. Upon the sale
of GDX Automotive Fitch lowered GenCorp's credit rating. In
characterizing the transaction Fitch said, "The downgrades reflect
lower-than-expected proceeds anticipated from the sale of the GDX
Automotive segment..." and went on to characterize the price as "...an
amount substantially lower than the amount previously incorporated
into Fitch's rating of GY." Fitch also made mention of GenCorp's weak
free cash flow and high debt levels.
o At the closing of the GDX transaction, the Company had received net
proceeds of only $140 million, $7 million short of the disclosed sale
price. As of GenCorp's 2005 Form 10-K, the Company still had not
received the $7 million balance.
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MISSED PROJECTIONS AND GOALS
2. THE SALE OF AEROJET FINE CHEMICALS
o On October 15, 2004 the Company announced its intention to sell its
Aerojet Fine Chemicals business unit ("AFC") and classified the
business unit as a discontinued operation. The Company stated that it
hoped the business would be sold in the next few months.
o Management indicated that investors should expect a sale price of
approximately $120 million to $150 million (eight to ten times the
business unit's $15 million of earnings before interest, income taxes,
depreciation and amortization, or "EBITDA").
o On July 13, 2005, the Company announced that it would sell this
business unit for $119 million, consisting of $100 million in cash and
a note from the purchaser for $19 million. This deal was then revised
to $88 million in cash, a purchaser note for $26 million and a $5
million earn-out.
o In the third quarter of fiscal 2005, the Company recorded a $28
million loss on the sale of AFC primarily because the Company was
forced to write-off the $26 million purchaser note (with income
thereon to be recognized when and if received).
o Not only did the Company sell AFC for below its initial guidance, a
"few months" turned into nine months, the purchaser note has been
written-off, and the Company invested over $38 million of cash into
AFC during the sale process (of which only $17 million was reimbursed
by the purchaser).
o We look at the sale of AFC as if GenCorp received $88 million in cash
less the $21 million of un-reimbursed invested capital, and thus the
Company in effect sold AFC for only $67 million (4.5 times EBITDA).
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MISSED PROJECTIONS AND GOALS
3. MANAGEMENT FAILED TO REACH A FAVORABLE AGREEMENT IN NEGOTIATING ITS ATLAS V
CONTRACT.
o Several times in fiscal 2004 and 2005, management disclosed that it
continued to expect the Company to recover its costs on the Atlas V
contract, and to renegotiate the contract so that it would be
profitable for the Company.
o To our surprise, on December 28, 2005 the Company announced a $165
million to $175 million write-off of Atlas V inventory (not recovering
sunk costs) and a renegotiation of the Atlas V contract that would not
be profitable until some time after 2007.
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CONTINUED CASH BURN
THE COMPANY HAS CONSISTENTLY MISSED CASH FLOW TARGETS FOR EACH OF THE PAST THREE
YEARS.
1. In the first quarter of fiscal 2003, management disclosed that it expected
free cash flow (operating cash flow less capital expenditures) of $10
million to $35 million for the full fiscal year.
o THIS PROJECTION WAS MISSED BY A WIDE MARGIN AS ACTUAL FREE CASH FLOW
FOR FISCAL 2003 WAS ONLY $2 MILLION.
2. In the first quarter of fiscal 2004, the Company stated a goal of being
cash flow positive for the full fiscal year.
o THIS GOAL WAS ALSO MISSED BY A WIDE MARGIN AS FISCAL 2004 OPERATING
CASH FLOW WAS NEGATIVE $30 MILLION AND FREE CASH FLOW WAS NEGATIVE $92
MILLION.
3. In the first quarter of fiscal 2005, the Company stated that it expected to
use $96 to $110 million in cash for the full fiscal year.
o THIS PROJECTION WAS ALSO MISSED AS TOTAL USE OF CASH IN FISCAL 2005
WAS $125 MILLION, 14% TO 30% MORE THAN THE COMPANY'S ORIGINAL
GUIDANCE.
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Continued Cash Burn
[BAR CHART OMITTED]
DATA POINTS FOR BAR CHART
($ in millions)
YEAR FREE CASH FLOW
2002 ($ 51)
2003 $ 2
2004 ($ 92)
2005 ($125)
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Erosion in Shareholders' Equity
[BAR CHART OMITTED]
DATA POINTS FOR BAR CHART
($ in millions)
YEAR SHAREHODLERS' EQUITY
2002 $ 360
2003 $ 428
2004 $ 141
2005 ($ 73)
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CORPORATE GOVERNANCE
WHY IS THE COMPANY UNWILLING TO ACCEPT CORPORATE GOVERNANCE REFORM?
o On November 2, 2004, a shareholder submitted to the Company a proposal
for inclusion in last year's proxy statement, requesting a non-binding
vote of the shareholders to recommend declassifying the Board of
Directors so that all directors would stand for election annually. The
Company ended up negotiating for the withdrawal of that proposal so
that shareholders would not have the opportunity to vote on it.
o On October 28, 2005, Pirate Capital submitted to the Company a
proposal for the 2006 annual meeting of shareholders, again requesting
a non-binding vote to declassify the Board. In the Company's 2006
proxy statement, the Board stated its unanimous opposition to the
proposal. The Board also stated that it would structure its 2007
proposal, if submitted, so that all directors would not stand for
annual re-election until 2009!
o TO OUR DISBELIEF, R. FRANKLIN BALOTTI, THE COMPANY'S "CORPORATE
GOVERNANCE EXPERT" NOMINEE, VOTED UNANIMOUSLY WITH THE REMAINING
INCUMBENT DIRECTORS AGAINST PIRATE CAPITAL'S PROPOSAL TO DECLASSIFY
THE BOARD. WE BELIEVE THAT A GUIDING TENET OF SOUND CORPORATE
GOVERNANCE IS TO ENCOURAGE ACCOUNTABILITY OF SENIOR MANAGEMENT THROUGH
ANNUAL ACCOUNTABILITY OF DIRECTORS.
Bottom Line:
o Pirate Capital does not believe that the Board's opposition to the
declassification proposal is consistent with good corporate governance
or in the best interest of shareholders. Pirate Capital believes that
annual accountability of boards is a pivotal factor in promoting sound
corporate governance. The current Board's opposition to this proposal
reflects the incumbent directors' refusal to subject themselves to
annual accountability to shareholders. Our nominees are committed to
pushing for immediate corporate governance changes at GenCorp.
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HOPE IS NOT A STRATEGY
WE BELIEVE THAT GENCORP'S STOCK APPRECIATION OVER THE PAST THREE YEARS IS DUE
TO EXTERNAL EVENTS, AND NOT REFLECTIVE OF OPERATIONAL IMPROVEMENTS.
o The Company owns vast tracks of real estate in Sacramento, California,
and real estate values in Sacramento increased 15% in 2003, 25% in
2004 and 19% in 2005 according to the OFHEO MSA House Price Index.
From 2002 to 2005 the House Price Index for Sacramento increased 68%.
Sacramento, CA OFHEO MSA House Price Index Growth
[LINE GRAPH OMITTED]
DATA POINTS FOR LINE GRAPH
YEAR INDEX VALUE
2000 91.5
2001 105.9
2002 119.2
2003 134.7
2004 163.1
2005 200.5
o In November 2004 GenCorp's stock price rose approximately 20% after
Steel Partners II, L.P. offered to acquire all of the outstanding
shares of the Company at a premium to the market price.
PIRATE CAPITAL BELIEVES THAT 2006 IS A CRITICAL YEAR IN DEVISING A STRATEGY TO
MAXIMIZE THE VALUE OF THE COMPANY'S ASSETS, AND WE DO NOT WANT TO RELY ON THE
"HOPE" THAT THE COMPANY'S MANAGEMENT TEAM IMPROVES SHAREHOLDER VALUE. WE BELIEVE
THAT SHAREHOLDERS MUST DEMAND CHANGE AT THE 2006 ANNUAL MEETING.
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NOMINEES
PIRATE CAPITAL'S NOMINEES HAVE SIGNIFICANT FINANCIAL, OPERATIONAL AND REAL
ESTATE EXPERIENCE AND ARE WELL SUITED TO WORK WITH AND MONITOR GENCORP AND ITS
MANAGEMENT.
o ROBERT C. WOODS is an investment banker at Cornerstone Capital
Advisors, a real estate investment bank, and is also a real estate
developer for Palladian Partners, a real estate development company.
As a nationally recognized investment banker and real estate
developer, we believe Mr. Woods' real estate experience would be
invaluable as the Company explores all alternatives to maximize the
value of the Company's real estate holdings. Mr. Woods has been
responsible for financing in excess of $2 billion of real estate
transactions including master planned communities, office, retail and
resort properties. He served as an investment banker for Summerset
Community, one of the largest master planned communities in Reno,
Nevada. Near Park City, Utah Mr. Woods is currently financing and
co-developing a 6,000 acre master planned community. Also, he has been
hired by Lennar Homes to serve as investment banker in divesting
assets, and in financing the development of new master planned
communities throughout the United States. We believe Mr. Woods'
experience would make him an invaluable member of the board, if
elected.
o TODD R. SNYDER is a Managing Director of Rothschild Inc., an
international investment banking and financial advisory firm. Mr.
Snyder is a prominent restructuring and reorganization advisor who has
been instrumental in a diverse selection of complex transactions
including financings, restructurings, reorganizations, workouts,
exchange offers, mergers, divestitures and buyouts. Most recently Mr.
Snyder has been an advisor to UAL Corp. and Solutia Inc. We believe
Mr. Snyder's significant experience navigating legacy issues and
balance sheet restructurings would make him a strong asset to the
board, if elected.
o DAVID A. LORBER is a Director and Senior Investment Analyst at Pirate
Capital. Mr. Lorber has been covering GenCorp for nearly two years and
has an extensive knowledge of the Company. Pirate Capital is confident
that Mr. Lorber's strong financial acumen and focus on value creation
would be highly valuable to the board in exploring all potential
options to maximize shareholder value. We believe that Mr. Lorber,
with his understanding of and advocacy for shareholder-
friendly corporate governance policies would serve as a pivotal voice
in the boardroom for all shareholders, if elected.
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OUR INTERESTS ARE ALIGNED WITH YOURS
Pirate Capital has been continually disappointed with what we perceive as
management's inability to meet projected targets and divest assets at
anticipated prices, as well as the Company's poor performance and dilutive
capital-raising initiatives. As the stewards of shareholder capital, it is the
Company's responsibility to project realistic forecasts and goals, not false
optimism or hope.
We have been a long term investor in GenCorp Inc. since August 2004. We are
currently its second largest shareholder, beneficially owning 8.4% of the
Company's outstanding common stock. We are asking for your vote at the 2006
annual meeting of shareholders in order to elect three highly-qualified
nominees, Robert C. Woods, Todd R. Snyder, and David A. Lorber, to the Board of
Directors, as well as your vote "For" an important corporate governance proposal
to declassify the Board of Directors.
We see 2006 as a critical year for the Company to develop a thorough strategic
plan for its vast real estate holdings, and to generate positive cash flow in
operating its Aerojet division. In our view, the current management team has
lost credibility through its continued failure to achieve Company-stated
projections and goals. We believe our highly-qualified nominees would bring an
important outside perspective to the Company at this critical inflection point.
OUR NOMINEES ARE COMMITTED TO ASSURING THAT BOARDROOM DISCUSSIONS WILL HAVE A
RENEWED FOCUS ON EXPLORING ALL STRATEGIC OPTIONS FOR MAXIMIZING THE LONG TERM
VALUE OF GENCORP.
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VOTE THE GREEN PROXY CARD TODAY!
A proxy statement regarding this proxy solicitation has been previously filed
with the Securities and Exchange Commission. We strongly advise you to read the
proxy statement, as it contains important information. Copies of the proxy
statement are available free of charge at www.sec.gov or by calling D.F. King &
Co, Inc. at the telephone number listed below. The GREEN proxy card is being
furnished to shareholders in connection with the solicitation of proxies by
Pirate Capital Group and not on behalf of the incumbent board of directors of
the Company. Pirate Capital Group consists of Pirate Capital LLC, Jolly Roger
Fund LP, Mint Master Fund Ltd., Jolly Roger Activist Portfolio Company LTD,
Jolly Roger Offshore Fund LTD and Thomas R. Hudson Jr., together with their
nominees David A. Lorber, Todd R. Snyder and Robert C. Woods.
If you have any questions concerning the Pirate Capital Group proxy statement,
would like to request additional copies of the proxy statement or need help
voting your shares, please contact our proxy solicitor:
D.F. KING & CO., INC.
48 WALL STREET NEW YORK, NY 10005
CALL TOLL-FREE: (888) 887-0082
BANKS AND BROKERAGE FIRMS CALL COLLECT: (212) 269-5550
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