By Jacob Bunge And David Benoit
DuPont Co. defeated the campaign by Nelson Peltz and his Trian
Fund Management L.P. to land seats on the chemical giant's board,
dealing a landmark setback to one of the most influential activist
investment firms.
DuPont's shareholders on Wednesday re-elected all of its sitting
directors, rejecting the criticisms of Mr. Peltz that the
212-year-old maker of Kevlar fibers and Pioneer corn seeds suffered
from a bloated corporate structure and sagging profits.
The vote, after two years of private and public jousting, is a
victory not only for DuPont and its chief executive, Ellen Kullman,
but for others in corporate America concerned that activist
investors' influence has grown too strong and that companies have
capitulated to their demands too readily.
Mr. Peltz, speaking briefly at DuPont's shareholder meeting,
thanked investors for their support and said he was proud of
Trian's analysis. He reiterated arguments that DuPont would miss
earnings targets this year and said Trian would keep watch.
When asked if he regretted the monthslong, multimillion-dollar
fight that culminated Wednesday, he said "I would do it again." He
said Trian had won support from the mutual funds and actively
managed investors, which he said was "rewarding" for him.
DuPont, he said, did a better job with retail shareholders, the
media and "scaring people."
Helping to decide the vote for DuPont was the support from the
company's three largest shareholders--Vanguard Group, BlackRock
Inc. and State Street Corp.--which all manage index funds. Those
funds, along with retail shareholders, made up a sizable block of
the votes cast on their own, according to some of the people.
Turnout was about 70%, some of the people said.
The vote was close enough that in the early-morning hours before
the meeting was called to order, people on both sides seemed
unclear whether tallies coming in were finalized and wondered if
the outcome could still shift.
The three big fund companies, as well as Bank of New York Mellon
Corp., which also voted for DuPont, together held a combined 18% of
the stock, according to S&P Capital IQ. Retail shareholders,
which the people said overwhelmingly voted for DuPont, represented
another 30% of shares and about half of those shares voted. Those
camps together--the indexers and the retail shares--represented
close to half the turnout.
Even as Mr. Peltz took the microphone shortly after the meeting
began, he said that the vote wasn't set in stone and that he
thought some votes could change. But DuPont collected ballots from
shareholders present and closed the polls in the following
minutes.
DuPont had to overcome in the past few weeks the recommendations
from proxy advisers Institutional Shareholder Services Inc. and
Glass Lewis & Co., which had said shareholders should put Mr.
Peltz on the board. While DuPont hadn't counted on ISS, it was
hopeful it would get Glass Lewis's support, people familiar with
the matter said. Those recommendations gave Trian a head start of
sorts as some funds vote automatically with those, and DuPont had
to convince others that usually vote with those recommendations to
take steps to override internal systems.
At the company's annual meeting, Ms. Kullman received a standing
ovation after the vote was announced. She thanked investors and
said she had been "extremely encouraged" by the feedback she had
gotten that DuPont was on the right path.
But Ms. Kullman pledged she wasn't done, and that the company
had more work to do.
"DuPont will continue doing what we do best, connecting our
science to the marketplace," she said.
Ms. Kullman, rather than accede to Mr. Peltz's push for
membership in her 12-person board, had risked an expensive fight on
the principle that Trian's vision for the company was wrongheaded
and that a board seat isn't something to be granted lightly and
under pressure.
In the showdown, Ms. Kullman, who is also DuPont's chairman, was
forced to defend the company's integration of scientific research
into products as diverse as pesticides and solar-panel components,
and to address Trian's attacks over vestiges of its long history,
such as a company-owned hotel, theater and country club.
Still, the outcome rattled some investors who had bet on Mr.
Peltz's ability to increase shareholder value. DuPont shares fell
7.4% to $69.33, wiping out nearly $5 billion in market value. It
was the stock's lowest close since Dec. 16 and the worst one-day
percentage decline since Oct. 23, 2012.
The fight was one of the largest proxy battles in U.S. history,
given DuPont's market value of $68 billion. It went down to the
wire, with Mr. Peltz on Monday making the latest of several
appearances on CNBC to assail DuPont's performance and the company
responding hours later with a statement decrying what it called
misleading statements that demonstrated Trian's failure to
understand DuPont's business.
Ms. Kullman, a 27-year veteran of DuPont who has led the company
since 2009, devoted much of her energy in recent months to
canvassing shareholders, arguing that Trian lacked scientific
expertise and that its focus was too short-term for a business
where laboratory breakthroughs and product launches can take more
than a decade.
Beating Trian clears the way for Ms. Kullman to continue her
plan to steer DuPont toward higher-profit products where its
scientific research can yield breakthroughs. The company argued
that its practice of cross-pollinating research functions across
divisions helped bring products to market more quickly and enabled
DuPont to be a nimbler supplier to big customers, like automobile
makers.
For Trian, the outcome is a blow to its ambitions to take on
ever-bigger companies by taking a seat at the board and raises
questions about the strength of its relationships with large
institutional shareholders who went the company's way. It marks a
high profile loss in its second-ever proxy fight, after Mr. Peltz
and an ally won seats at H.J. Heinz Co. in 2006.
A Trian victory would have made DuPont the largest company to
ever lose a board seat in a vote, according to FactSet, but instead
Trian joins a list of defeated activists such as Jana Partners LLC
at Agrium Inc. in 2013 and Starboard Value LP at AOL Inc. in
2012.
The proxy campaign loss for Trian signals a potential limit on
the abilities of activist investors to target companies that have
outperformed the broader stock market. DuPont's management--as well
as some analysts and observers--argued that it represented a poor
candidate for activism, given its stock's market-beating
performance during Ms. Kullman's tenure and her
shareholder-friendly moves to cut costs and have DuPont buy back
billions of dollars of its own shares.
The vote also shows the muted influence of shareholder advisory
services like Institutional Investor Services Inc. and Glass Lewis
& Co.
Trian's failure to secure any board seats also raises questions
around the fund's roughly 2.7% position in the company. Some
investors have worried that if Trian didn't make it onto DuPont's
board, Trian could dump its shares--as could other investors who
bought DuPont's stock on hopes that Trian would push for changes
and improve its valuation.
Trian's statement Wednesday didn't discuss plans for its stake,
saying "we will continue to closely monitor DuPont's
performance."
In prevailing over Mr. Peltz at the ballot box, DuPont bucked a
trend of companies increasingly choosing to settle with activist
investors rather than fight them to a shareholder vote. Though
DuPont and Trian both extended offers to compromise and resolve the
campaign, neither would back down on the key point of whether Mr.
Peltz personally should receive one of the 12 seats. Trian insisted
Mr. Peltz be on DuPont's board, but the company wouldn't budge.
In the past five years, the number of proxy fights has declined,
to 92 last year from 133 in 2009, even as the counts of activism
campaigns broadly have soared, to 347 last year from 219 in 2009,
according to FactSet. Those activism situations that have gone to a
proxy fight often reach an accord before the final vote. More than
half of last year's proxy fights settled before a vote, compared
with just 31% in 2009, the data provider said.
DuPont's victory could embolden more companies to take on
activists in shareholder votes--though increasingly companies have
lost such contests. Activists won their full slate 56% of the time
votes were actually cast last year, compared with 43% in 2009,
according to FactSet.
DuPont sought to rally stockholders to its cause by arguing that
Trian wanted to establish a "shadow management" committed to
breaking up the company from inside the board, even though
directors already had rejected the idea. The company raised
concerns that Trian would slash its research and development
spending, which struck a chord with some investors, including
pension giant California Public Employees' Retirement System, or
Calpers, which last week said it voted its 6.15 million DuPont
shares in management's favor.
Trian first notified DuPont of its investment in June 2013, and
shortly afterward presented an analysis that called for splitting
up the company. DuPont resisted the idea of breaking up, though it
was in the process of planning to split off its
performance-chemicals operations, which it announced in October
2013. Trian requested representation on DuPont's board but was
turned down.
The firm debated DuPont's earning power for months before Trian
again requested a seat on the company's board, which DuPont
rebuffed. Trian took its criticisms of DuPont public last fall and
formally initiated the proxy contest in January.
While more than 20 meetings and conference calls between the
camps followed over the next two years, according to DuPont
disclosures, they couldn't find common ground on the questions of a
breakup or on board representation for Trian.
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Even heading into this week, Trian and DuPont weren't discussing
any possible last-minute settlement, people on both sides said,
reflecting the deep divide between the two camps.
Write to Jacob Bunge at jacob.bunge@wsj.com and David Benoit at
david.benoit@wsj.com
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