DuPont Activist Trian Wins Partial Backing From ISS

Updated on

Trian Fund Management, the activist investor that has called for a breakup of DuPont Co., won the backing of Institutional Shareholder Services Inc. for two nominees in its fight for seats on the chemical maker’s board.

DuPont shareholders should vote for Trian Chief Executive Officer Nelson Peltz and John H. Myers, a former CEO of General Electric Asset Management, as well as eight DuPont directors listed on the activist’s proxy card, ISS said Monday in a report. The proxy advisory firm also said votes should be withheld for Trian’s other two nominees.

“This is not a broken company -— but there is compelling evidence that the dissidents are onto something in their critique,” ISS said.

ISS is one of the most influential firms that dispense corporate-governance advice to fund managers. Today’s recommendations stop short of a full endorsement of Trian’s campaign. The activist has sought a breakup of the 212-year-old company and the elimination of what it says are $4 billion of excess corporate expenses.

“The ISS recommendation was predictable,” said Damien Park, head of Hedge Fund Solutions LLC, which compiles data on activism. “They will typically suggest shareholders vote for one or two dissident nominees when a compelling case for change has been made.”

‘Best Interest’

DuPont rose 4.6 percent to $74.81 at the close in New York, the biggest one-day gain since Sept. 17.

ISS said Peltz is needed on the DuPont board because Trian provides its executives with “extensive analytic support” to improve their effectiveness at board meetings and to drive appropriate changes.

“Peltz’ election thus seems clearly in the best interest of all shareholders,” ISS said.

In February, DuPont had rejected the idea of Peltz joining the board, saying his “agenda” to break up the company wasn’t in shareholders’ long-term interests.

The showdown isn’t only a test for DuPont Chairman and CEO Ellen Kullman, who has defended her company’s conglomerate structure, but also for Trian and Peltz, a co-founder of his firm. It’s only the second time, after H.J. Heinz Co. in 2006, that Trian has mounted a proxy fight during a decade of activism.

‘Utterly Unclear’

Trian is advocating the separation of DuPont’s faster-growing agriculture and nutrition businesses from more cyclical units such as safety and protection, which makes Kevlar anti-ballistic fiber and Nomex heat-resistant fabric. It further contends that the largest U.S. chemical company by market value is beset by bureaucracy and organizational complexity, and has either missed or lowered earnings forecasts for three consecutive years.

“ISS’s voting recommendation underscores our view that increased oversight is needed in the DuPont boardroom to improve performance and increase stockholder value,” Peltz said in a statement Monday.

Kullman has argued that integrating its various businesses is key to the company’s performance and that dismantling DuPont would be costly and high-risk.

“It remains utterly unclear whether this company should in fact be broken up,” ISS said. “It seems eminently clear that there is a compelling need for a minority change at the board level to address these myriad other, more immediate and perhaps more promising, issues the dissidents have substantiated.”

Hotel DuPont

Kullman is pushing ahead with a plan to cut $1 billion of cost cuts this year, as well as buying back shares and spinning off DuPont’s performance-chemicals business.

The company has put up for sale its historic Hotel DuPont and DuPont Country Club in Wilmington, a person familiar with the matter said this month. DuPont announced in January the sale of its eponymous, 102-year-old theater, a venue for previous investor meetings. The May 13 annual shareholders’ meeting will be held at the company’s office complex on the outskirts of the city.

ISS is ignoring the company’s successful strategy, the “value-destructive nature” of Trian’s plans and the fact that adding Trian nominees would remove “critical experience” from the company’s board, DuPont said in a statement Monday.

‘Lack of Understanding’

“This demonstrates a fundamental lack of understanding of our business,” DuPont said.

Self-described “constructivists,” Trian often targets conglomerates, buying stakes in public companies its partners consider under-performers. Trian seeks to work with management and boards to boost shareholder returns.

Trian has reached settlements to add its representatives to boards at targeted companies including PepsiCo Inc., Mondelez International Inc., Bank of New York Mellon Corp. and Family Dollar Stores Inc.

That kind of cooperation at DuPont hasn’t been forthcoming since Trian acquired its initial stake in 2013. The activist went public with its criticisms in September and in January began soliciting support for its nominees, among them Peltz.

Further talks between the two sides broke down in February after DuPont refused to accept Peltz onto the board, and DuPont appointed two new independent directors of its choice.

DuPont is counting on an unusually large portion of retirees and other individual investors, estimated by the company at more than 30 percent of shareholders, to support its incumbent directors. These retail investors, who historically “look to management,” seem more concerned with the company’s long-term outlook than others, Kullman said last week.

A smaller adviser, Proxy Mosaic, last week backed Dupont’s incumbent board, describing it as “one of the few areas of the company that isn’t broken.” It criticized Peltz for his insistence on a board seat.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE