The conflict between Trian Partners, the hedge fund founded by activist investor Nelson Peltz, and DuPont management is escalating. Fed up by what it sees as poor performance and management inaction, the fund, which has a 2.7% stake in DuPont, has nominated four people who will stand for election as directors at DuPont’s annual meeting this spring.
In a 35-page white paper sent to DuPont, Peltz laid out his case that DuPont is a lumbering conglomerate with a management team that has repeatedly destroyed shareholder value with missteps.
For instance, although the company divested $40 billion in businesses since 1998 and acquired $12 billion in businesses over the same period, DuPont’s stock is still 21% off its peak of that year, Peltz noted.
Recent DuPont mistakes, he argued, include selling its coatings business instead of spinning it off to shareholders. Under new ownership, that unit, now called Axalta,
boosted profitability by $230 million, merely by shedding its share of DuPont’s corporate costs.
Peltz reiterated his call to break up DuPont beyond the pending spin-off of the Chemours performance chemicals segment. In his vision, one new firm would be a growth company centered around Danisco and the Pioneer seed business. The other would hold industrial staples such as electronic materials and engineering polymers.
“Trian is concerned that DuPont’s senior leadership team, which has over 600 years of collective work experience at the company, is insular and will continue to step into the same potholes that have destroyed value over a long period of time,” Trian said. “It appears management either fails to understand the root cause of the underperformance or feels threatened by the solution.”
Peltz himself is one of Trian’s nominees to DuPont’s board. Another is Robert J. Zatta, chief financial officer and acting chief executive officer of chemical maker Rockwood Holdings. Peltz believes that Rockwood, which sold its ceramics and titanium dioxide businesses and now is being acquired by Albemarle, serves as a model for DuPont.
The two remaining Trian choices are John H. Myers, former president of GE Asset Management, and Arthur B. Winkleblack, former chief financial officer of H. J. Heinz Co.
Peltz’s gambit isn’t without recent precedent. Last November, activist investor Third Point threatened to nominate two directors to Dow Chemical’s board. The two parties later reconciled and agreed to put up four new independent directors at Dow’s next annual meeting.
For the year and a half that Peltz has been in her life, DuPont CEO Ellen J. Kullman has tended to offer gentle responses to his criticism. However, DuPont reacted to the current white paper with a more spirited defense.
“Despite numerous efforts to engage constructively, including multiple calls and meetings with our CEO, CFO, and lead independent director, Trian has chosen this path with the potential to disrupt our company at a key stage of execution against our plan,” the firm responded.
The company added that it has generated 266% in returns to shareholders since the current management team took over in 2008.