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Business

Trian Says DuPont Must Do More

The hedge fund believes DuPont should split into three different firms

by Tullo
September 17, 2014

The activist investor that has amassed a nearly 3% stake—worth $1.6 billion—in DuPont is unhappy with the pace and breadth of DuPont’s restructuring moves. Trian Fund Management says the Wilmington, Del.-based giant needs a more aggressive approach if it wants to significantly boost returns to shareholders.

In a letter to DuPont’s board, Trian’s partners, including founder Nelson Peltz, outline a plan that they say could double the value of DuPont’s shares—worth just more than $60 billion today—within three years.

The Trian partners praise recent DuPont moves, including the planned spin-off of its performance chemicals business into a new company that would operate long-held DuPont businesses such as titanium dioxide and fluorochemicals.

Trian suggests that DuPont should further split into two more companies. One would be a high-growth firm that would operate DuPont’s agriculture, nutrition and health, and industrial biosciences businesses. The other would be a cyclical, high-cash-generating company that would house its performance materials, electronic chemicals, and safety and protection businesses.

Trian argues that DuPont’s conglomerate structure holds DuPont back by adding between $2 billion and $4 billion in unnecessary costs. DuPont, Trian points out, even operates a hotel, a theater, and a country club. “We can no longer be silent as DuPont continues to struggle to execute what we are convinced is a flawed business plan,” they write.

Trian points to Axalta, the paint unit DuPont sold to the Carlyle Group in 2013. Trian says the private equity firm has been able to improve pretax earnings by 140% by removing corporate overhead. In contrast, profit margins at Dansico are half of what they were in 2010, the year before DuPont bought it.

In response, DuPont says it has had a “constructive dialogue with Trian,” but also notes that it has earned a 220% return for shareholders since 2008, versus 144% for the S&P 500 Index. In its statement, it also highlights a $1 billion cost reduction initiative as well as a $5 billion share buyback program.

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