DuPont DD has officially rejected the latest board seat proposal of activist investor Nelson Peltz’s Trian Fund Management. Trian proposed DuPont last week to add two nominees (including its CEO and founding partner Peltz) to the company's board and another two to the board of Chemours – the unit which the chemical behemoth plans to spin off by mid-2015. Trian urged DuPont to accept all four nominees and alter certain corporate governance provisions at Chemours.
DuPont, however, rebuffed the proposal last Friday by citing that it does not represent a meaningful step toward a constructive resolution. The company, in a regulatory filing, said that direct representation by a Trian principal is not a mutually acceptable resolution that serves the best interests of its shareholders.
DuPont, however, noted that it was prepared to add one of four Trian nominees – John H. Myers – to its board to settle the proxy contest. The company, last month, appointed its own nominees – Ed Breen and Jim Gallogly – as independent directors to its board.
Trian said yesterday that there is strong interest among large institutional stockholders of DuPont in having a Trian principal on the company’s board. The investment fund has received positive feedback from DuPont’s shareholders regarding all of its nominees. Trian also remains open to discussing a realistic settlement of the proxy war.
Trian currently owns roughly $1.8 billion of DuPont’s outstanding shares, making it one of the company’s biggest shareholders with around 2.7% stake. Peltz, having a proven track record of success, has been a key force behind the breakup of Kraft into Kraft Foods Group KRFT and Mondelez International MDLZ.
DuPont’s shares fell 4.3% to close at $77.07 yesterday. The company has delivered a one-year return of roughly 20%.
DuPont faced increased pressure in Jan 2015 after Trian announced its plans to nominate four directors to the company's board, launching one of the biggest activist-investor led proxy battles in recent times.
Trian said that it will nominate Peltz and other three members (John Myers, Arthur B. Winkleblack and Robert J. Zatta) to DuPont’s board for election at its 2015 annual shareholders’ meeting. The move to secure board seats represented a fresh attempt by Peltz to break up the 200-plus year old company.
DuPont, in response to Trian’s announcement, defended itself by saying that its 13-member board and management have a track record of delivering healthy shareholder returns and will remain committed to carry out strategies to boost growth and profitability.
DuPont further noted that it has actively executed strategic actions including portfolio optimization and has delivered a 266% return to shareholders under the existing leadership since end-2008 vis-à-vis a 159% return for the S&P 500 for the period. DuPont also added that it remains on track with its productivity actions and the spin off of its Performance Chemicals unit (Chemours). Cost savings of at least $1 billion is also expected through its company-wide redesign initiative.
Earlier, in Sep 2014, Trian pressed DuPont for breaking itself up into two distinct companies citing that its current conglomerate structure and flawed business plans are destroying shareholder value. Trian – in a letter to investors – said that the suggested move could materially improve DuPont’s financial performance and double the value of its stock within next three years.
Trian suggested DuPont to separate its high growth businesses – agriculture, nutrition and health, industrial biosciences – from its cyclical/high cash generative businesses – performance materials, safety and protection, electronics and communications. It also urged DuPont to eliminate unnecessary holding company costs (estimated at $2–$4 billion of excess corporate costs).
Trian claimed that DuPont’s board is unwilling to hold its management responsible for its sustained underperformance and failures to meet sales and earnings targets and the company has significantly underperformed the diversified chemical companies and industrial conglomerates in terms of shareholder returns and earnings per share (EPS) growth.
However, DuPont have been actively shielding itself against such breakup calls while remaining focused on executing strategic actions including portfolio optimization, disciplined capital allocation and cost control.
DuPont’s compatriot Dow Chemical DOW also came under pressure in early 2014 after activist investor Dan Loeb's Third Point hedge fund (a major stakeholder in Dow) urged Dow to spin off its sluggish petrochemicals business and focus instead on high-margin, fast growing businesses with a view that the move will create more value for the company’s shareholders.
However, Dow and Third Point reached a crucial agreement in Nov 2014, under which, the former agreed to add four new, independent directors to its board (including two suggested by Third Point), thus avoiding the possibility of a proxy battle between them.
DuPont currently sports a Zacks Rank #4 (Sell) while Dow is a Zacks Rank #3 (Hold) stock.
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