DuPont-Trian proxy fight offers 3 take-aways

By Sam Waltz

Founding Publisher

Specific vote totals in the DuPont Company’s victory in an historic proxy fight waged by the Trian Fund and investor Nelson Peltz likely will not be known for another day or two, but three things emerged after the Wednesday.

  • First, voting seemed so closely contested – with an outcome that retired executives at a luncheon Wednesday speculated might be 60-40, perhaps even 55-45 – that a DuPont-Trian Proxy Fight II in 2016 seems a distinct possibility.
  • Second, the DuPont – Trian proxy battle may go down in business history books as the first of a “next generation” in proxy fights, something little noted in Delaware because the investor-by-investor fight was so local and “in-your-face” that the perspective disappeared.
  • Third, while DuPont has not yet said how it did it, DuPont’s successful courtship of the “swing vote” of the so-called “retail investor” – the “mom ‘n pop” investors who invest for safety, dividends and the historic metrics before the proliferation of institutional investors – will be an important part of that history.

In an annual meeting that lasted only 45 minutes Wednesday, shareholders of the DuPont Company trumped the dreams of activist investor Nelson Peltz and his Trian Fund, turning down Peltz’ bid to elect 4 directors to the 12-member DuPont Company Board, instead reelecting the DuPont Company’s 12 hand-picked candidates.

Ellen Kulman greets Peltz
DuPont CEO Ellen Kullman greets  Investor Nelson Peltz before Wednesday meeting. Photo: Dupont

It was not until the eve of Wednesday’s meeting that CEO Ellen Kullman and DuPont Co. forces realized they likely were about to win, and Peltz and Trian Fund allies realized they were about to lose — and even then, no one was 100 percent certain. Shareholders – except for the row of Trian-affiliated investors, staff and attorneys, about 25 people – gave CEO Ellen Kullman and the DuPont Company’s leadership team a 1-minute standing ovation when the vote outcome was announced.

Peltz had focused his efforts on institutional investors, successfully corralling the support of three advisory services whose independence and neutrality some retired senior DuPont Company executives privately questioned.

DuPont contested those investors, but also focused on the “retail investor” niche, the individual “mom ‘n pop” investors who ordinarily are inclined to support management, but rarely vote in such proxy fights.

After the vote totals were announced, Kullman summarized in a few minutes what she called DuPont’s “important transformations,” particularly citing the July 1 spinoff of Chemours as “the most significant step” in the company’s history. She talked about other divestitures as well as changes in the company to point it in a new growth direction.

In his impromptu press conference when the meeting ended, Peltz continued his objections to DuPont’s current leadership, asserting “the emperor has no clothes.” He said he felt DuPont would not hit its earnings objectives for 2015, which he said would require a 30 percent growth over the last 3 quarters of 2015. If DuPont fails to hit its targets, Peltz essentially said he would be back in 2016 with Proxy Fight #2.

Peltz credited DuPont with its success in wooing “the retail investors,” the everyday investors who own DuPont stock, as well as the index funds. He noted Trian’s success in attracting support from the 3 national investment advisory services, as well as many other opinion leaders. He also credited DuPont with success in wooing support of the press, although the press as a whole seemed largely to remain neutral on the issue, and many handicapped the proxy fight in favor of Trian and Peltz.

Among the Peltz advisors attending were Martin Lessner, a senior attorney in Wilmington and partner with Young Conaway Stargatt and Taylor, who declined to comment, and George Sard, CEO and Chair of Sard Verbinnen, a large global PR firm advising Trian.

Kullman said after the meeting that she was “pleased with the outcome of the meeting,” but that she did not know the results for certain until they were announced.

“The retail vote is about one-third of the company,” she added, referring to individual investors. “They normally don’t vote as often as they should. We got their attention this time, and they did (vote). They’re helpful, and they’re normally supportive of management.”

The proxy fight challenged DuPont to better tell its story and redefine DuPont in the spring, prior to when it planned to do so in early summer, with the spinoff of Chemours business.

“You have to be actively engaged with shareholders telling your story,” she said. “We as a company don’t tell our story well enough. We’ve undergone a lot of change. When we engaged with our shareholders, it was clear that they remembered a company of 20 years ago, not the company we’ve become.”

Kullman called out her Board of Directors for acclamation.

“I’m very proud of my Board. They’re a Board that continues to raise the bar. This took it to another level. They’re a tremendous asset to our company, a tremendous resource,” she said.

She said she would continue to work with Peltz on an even-handed basis. “They’re a shareholder, and we engage with our shareholders,” she said of Trian, which owns about 2.7 percent of DuPont stock.

The DuPont victory did not come without costs, the proxy fight cost an estimated $15 million for DuPont, she said, others saying perhaps as high as $20 million.

The meeting dealt with several proposals, and, except for the proxy fight led by Trian, it went largely as DuPont meetings have gone over the years, perhaps even quieter than those of 20-30 years ago when gadfly investors like Evelyn Y. Davis made the rounds of companies such as DuPont. It opened with a call to order, and a brief 90-second video summarizing DuPont’s transition to an ag, nutrition and sustainability company.

Proposition 1 was the Proxy issue, and Peltz was given 10 minutes to make Trian’s case for electing its four directors as a catalyst for the change that he said was needed. “We consider ourselves ‘constructionists’,” said Peltz, rejecting terms he said he’d heard like ‘greenmail” and “dissident investor.” Trian buys “larger stakes in good companies” for long-term investments, he added.

DuPont, currently trading about $70/share, could be worth $120/share by the end of 2017, he told DuPont’s shareholder audience. And he called out a number of examples in DuPont’s transformation over the last couple years for which Trian took credit as an activist investor, among them, “long-overdue cost-cutting,” changes in executive compensation, and the Chemours spinoff.

“Respectful confrontation” is how he referred to his activist approach. “Trian has a record of making companies better.”

Polite applause from the 400-plus shareholders in the room greeted the conclusion of his remarks.

“We believe we can make DuPont great again,” Mr. Peltz said after learning the outcome of the vote and vowing to remain involved. “Whatever the results we’re proud of the role we’ve played as a positive change agent.”

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