In the 1920s, chemicals and materials giant E.I. DuPont de Nemours invented a way to judge the returns on its internal investments for shareholders, a formula that became a staple of Wall Street security analysis. Now, nearly a hundred years later, one of the company's largest shareholders is arguing that DuPont is overly complex, inefficient and should be broken apart.
On Thursday evening, Nelson Peltz of activist hedge fund Trian Management said that after failing to negotiate a settlement with DuPont, the firm will run a proxy campaign against the over 200-year old company, nominating four directors. Trian is one of DuPont's largest shareholders, holding a stake of 24.4 million shares worth just under $2 billion, nonetheless, the fund will need the support of DuPont's many other shareholders. The hedge fund owns less than 3% of DuPont's outstanding shares, a small percentage when compared against some proxy campaigns.
The Trian campaign is sure to shed new light on activists' ability to rally the support of rank-and-file shareholders against what they deem to be under-performing management teams. DuPont, a Dow Jones Industrial Average Component, carries a market capitalization nearing $70 billion and CEO Ellen J. Kullman has spent years divesting assets and focusing on the company's best businesses.
Surprisingly, it is the chemicals and materials sector, with large conglomerates that have histories stretching into the 19th century, where activists appear on the verge of major breakthroughs in shareholder advocacy.
Daniel Loeb of Third Point Management negotiated a standstill with
Trian Management, unlike Third Point and Dow Chemical, didn't find a path towards a last minute settlement with DuPont. Peltz said on Monday he would seek to join the company's board, in addition to John H. Meyers, CEO of GE Asset Management, Arthur B. Winkleback, CFO of H.J. Heinz Company, and Robert J. Zatta, the acting CEO of
For Peltz, proxy campaigns are a familiar piece of his investing arsenal. Nonetheless, the powerful but generally media shy activist has settled with management more often than not, preferring to play a behind the scenes role inside a corporate boardroom rather than a campaign in the press. Trian has settled with companies like
With DuPont, Trian argues that the company should separate its agriculture, nutrition and health and biosciences businesses into a growth-oriented company, while also splitting apart DuPont's performance materials, safety and electronics business from its performance chemicals unit. Such a split would eliminate layers of overhead, improve accountability, including on organic investment returns, and improve DuPont's valuation multiples.
In some criticisms of management, Trian has argued that DuPont uses its conglomerate structure to blend high and low-return businesses together, masking the strong performance of some of the company's divisions and the poor returns of others.
Third Point made similar criticisms of Dow Chemical, before settling in November.
About Trian's proxy campaign, DuPont said on Thursday its board has a long track record of delivering shareholder value, citing the company's total returns of 175, 78% and 160% over the past one, three and five-years. Under its current leadership, DuPont further said that it's returned $13 billion in capital and significantly outperformed both the S&P 500 and its peers as a result of large strategic changes.
"Our businesses benefit from significant competitive advantages as part of DuPont. The combined power of DuPont's science platform, our global scale, market access, and infrastructure leverage, along with our established brand and solid financial foundation, have enabled us to deliver strong returns," DuPont said.
"Despite numerous efforts to engage constructively, including multiple calls and meetings with our CEO, CFO and lead independent director, Trian has chosen this path with the potential to disrupt our Company at a key stage of execution against our plan," the company added.
DuPont said it will review Trian's proposed nominees and make a recommendation in its proxy statement to shareholders. "In the interim, we will remain laser focused on executing our plan, which has already delivered and continues to drive superior value to shareholders," the company said.
