Dow, DuPont, Yahoo -- Activist Shareholders Hit a Trifecta

Dow, DuPont Deal to Be Followed by Businesses Breakup
  • Pressure from investors set in motion changes in strategy
  • DuPont proxy vote was `watershed moment for activism'

Activist investors are showing they couldn’t care less about the size and stature of their target companies.

In the space of 24 hours, DuPont Co. and Dow Chemical Co. -- two symbols of U.S. industrial might -- and Yahoo! Inc. -- a star of the early Internet age -- each set in motion a change in course after coming under pressure from activists. The events were the latest and most dramatic evidence of the increasing power of these shareholders to influence managements of storied American corporations.

Dow and DuPont, both among the oldest chemical companies in the U.S., are in late-stage talks to merge and then be broken up, according to people familiar with the matter. And Yahoo, the once go-to Internet site and e-mail address for millions of people, is considering splitting the business in two, scrapping a plan to spin off its shares in Alibaba Group Holding Ltd.

While the activists didn’t get everything they had called for, the corporate restructurings come after each company was criticized by activists unhappy with their financial performance.

“Management teams, even in large cap companies, are under pressure to perform and are being very closely monitored by investors,” said Bruce Goldfarb, president and chief executive officer of proxy advisory firm Okapi Partners.

Third Point

In Dow’s case, Dan Loeb’s Third Point LLC mounted a tried-and-true activist campaign early last year, pushing the company to separate its petrochemicals business from its specialty chemicals, citing the company’s failure to meet its own expectations.

Dow responded with plans for share buybacks, dividends and more asset sales, while rejecting Loeb’s restructuring approach. But Dow agreed in November 2014 to put two of Loeb’s nominees on the board and an additional two directors named by the company.

At DuPont, Nelson Peltz and his Trian Fund Management launched a proxy fight earlier this year in an effort to put four representatives on the board. The chemicals giant fought back, hammering its message that then-CEO Ellen Kullman was already steering the company toward a better valuation. It also had engaged in settlement talks with Peltz but they fell apart over the activist’s insistence that he join the board.

Peltz lost the proxy vote in May, yet it proved to be a cautionary tale for corporate executives. DuPont’s stock tanked and Kullman lost her job five months later. The resignation came hours after Trian co-founder Ed Garden said the firm had increased its stake.

‘Watershed Moment’

Given the close vote, it showed that even large companies were vulnerable to activist shareholders holding small stakes, said Ken Squire, president of 13D Monitor, which tracks activist campaigns.

“The proxy fight at DuPont was a watershed moment for activism,” he said. “Now, CEOs and management are thinking, why do we need to make this so polarized?”

If the merger between Dow and DuPont takes place, the company would break into three businesses -- agriculture, specialty chemicals and commodity chemicals -- because of regulatory and other issues.

Yahoo had its wake up call from activist Starboard Value LP’s Jeff Smith. After he began by calling for a sale or merger in September 2014, Smith ratcheted up his demands, telling the company in November to drop the Alibaba spinoff and put itself up for sale.

Starboard got a partial victory. Yahoo on Wednesday said it was ditching the Alibaba spinoff amid investor concerns that it would produce a huge tax bill. And the company said it would look into a spinoff of its core business into a new publicly traded company, rather than selling it as Starboard had suggested.

Strong Year

Activists have had a strong year generally in getting their way. Companies have settled within 56 days on average after an activist demands board representation, compared with 67 days last year and 74 days in 2013, data from Activist Insight show.

What’s more, activists were successful about 74 percent of the time last year in getting companies to make at least some of the changes they requested, according to the report, compiled for an October conference hosted by Schulte Roth & Zabel, a law firm that often works for activists.

While activists have gained a place “at the governance table,” said Adam Emmerich, a partner at Wachtell Lipton Rosen & Katz, management and boards are “uniquely situated, and obligated, to make decisions in the best interests of the companies they serve." The law firm has long criticized activists as too short-termed focus.

Still, it’s likely their campaigns will only increase. Funds managed by activists climbed to $129.7 billion as of mid-2015, almost doubling from the $65.5 billion they had to play with in 2012, data from HFR show.

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