WILMINGTON, Del.-- DuPont Co. repelled a push by Nelson Peltz
and his firm to join its board, a signal victory for the industrial
giant in a battle that tested the limits of a wave of investor
activism.
In a close vote Wednesday, DuPont's shareholders re-elected all
of the company's sitting directors, rejecting Mr. Peltz's
contention that his firm, Trian Fund Management LP, needed to be on
the board to juice profits at the 212-year-old producer of Kevlar
fibers and Pioneer corn seeds. Trian had sought four of DuPont's 12
board seats--including one for Mr. Peltz, its chief executive--and
said the company should slash corporate expenses, better scrutinize
spending on research, and consider breaking itself up.
The battle stood out amid recent activist campaigns, in part
because DuPont seemed an unlikely target. With a market value of
nearly $68 billion, it is one of the biggest companies to ever face
such a proxy battle, and by some measures it had performed well
under Chief Executive Ellen Kullman, with its shares outgaining the
market even before Trian's initial stake became public nearly two
years ago.
Ultimately, some investors said they voted for DuPont because
they felt Ms. Kullman--who spent much of this year crisscrossing
the country to woo shareholders--was herself making
investor-friendly moves. And some credited Trian with raising the
pressure on her.
"The company, as a result of this, is a little bit stronger,
better, more focused," said Kevin Walkush, an analyst with Jensen
Investment Management. The Oregon-based fund voted its 1.87 million
DuPont shares for management's nominees because of concerns that
Trian's focus was too short-term, but Mr. Walkush said Trian forced
DuPont's leaders to "sharpen their pencils and really articulate
what they're saying and doing."
The outcome is a narrow victory not only for DuPont and Ms.
Kullman but also for others in corporate America who are concerned
that activist investors" influence has grown too strong and that
companies have capitulated to their demands too readily. Even as
the number of activism campaigns broadly has soared, to 347 last
year from 219 in 2009, proxy fights have declined by about 30%, to
92 last year, according to market-data provider FactSet. And even
in proxy fights, companies have increasingly reached
settlements.
The loss for Trian, one of the most prominent
activist-investment firms, could embolden other companies to take
on activists in shareholder votes, though it also suggests that the
path to victory lies in strong performance and shareholder-friendly
moves rather than in defiance alone. Ms. Kullman in the past two
years has announced plans to cut costs and buy back billions of
dollars of DuPont's own shares, as well as the spinoff of a
division that makes titanium dioxide, all moves she said were part
of her team's strategic vision.
The outcome "suggests that the institutional investors thought
they were getting the benefits from the activist without putting
Peltz on the board," said Christopher Davis of Kleinberg, Kaplan,
Wolff & Cohen P.C., a lawyer who often works with activists.
"Performance and the perception of improved future performance are
much better defenses than the hurdles lawyers erect."
Underlining the mixed message, DuPont shares fell 6.8% Wednesday
as investors who had bet that Mr. Peltz would win the fight sold
off.
The vote was only Trian's second 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. Still, Trian's
investment in DuPont is lucrative at this point.
Mr. Peltz, speaking briefly at DuPont's shareholder meeting, was
defiant. He said that no decisions had been made on what to do with
Trian's 2.7% stake in DuPont but that Trian would keep watch. Asked
if he regretted the multimillion-dollar fight, he said, "I would do
it again" and--noting the close vote--he left open the possibility
of starting another fight when nominations for DuPont's board open
again later this year.
Ms. Kullman, a 27-year veteran of DuPont who has led the company
since 2009, received a standing ovation at Wednesday's meeting in
Wilmington, Del., after the vote was announced. She called the
process an "interesting engagement" and said that even with the win
she didn't think any shareholder would take pressure off her
performance.
The battle for investor support continued to the final bell,
with Trian and DuPont trading punches in television appearances,
shareholder letters and press releases while telephoning investors
large and small to make their case. The direction of the vote
didn't become clear until soon before the shareholder meeting
started, when the two sides learned that DuPont had won the votes
of its three largest shareholders--Vanguard Group, BlackRock Inc.,
and State Street Corp.--people familiar with the matter said.
Trian had won support from Fidelity Investments, J.P. Morgan
Chase & Co. and Capital Research & Management Co., people
close to the matter said. But the three big index-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.
Individual shareholders, which the people said overwhelmingly
voted for DuPont, represented an additional 30% of shares and about
half of those shares voted. The index funds and the retail shares
together represented close to half the turnout.
The contest forced Ms. Kullman, who is also chairman, to defend
DuPont's integration of scientific research into products as
diverse as pesticides and solar-panel components, and to address
Trian's attacks related to vestiges of its long history, such as a
company-owned hotel, theater and country club.
DuPont sought to rally stockholders by arguing that Trian wanted
to slash R&D spending and establish a "shadow management"
committed to breaking up the company, although Trian said it wanted
only more effective use of research dollars and wasn't locked into
splitting the company. DuPont agreed to sell the theater in
January.
But DuPont also wanted to show that it was receptive to
shareholder concerns, people close to it said. With the race
looking tight, DuPont in early April deployed its executives and
directors to hold even more discussions and meetings with
shareholders, they said.
The effort worked for Colin Wong, an analyst with Mawer
Investment Management Ltd., a Calgary, Alberta-based firm that owns
about 900,000 DuPont shares. He said DuPont contacted his firm a
few weeks ago to put board member Lee Thomas and Chief Financial
Officer Nick Fanandakis on the phone.
Mr. Wong told them that some of Trian's points, such as a
sharper focus on returns on invested capital, were worth
considering. Mr. Thomas, one of four directors that Trian tried to
oust, listened and provided examples of how DuPont's board measured
performance and strategy, Mr. Wong recalls. "We ended up siding
with management, given that they have done a lot of the stuff they
said they were going to do," Mr. Wong said.
Write to Jacob Bunge at jacob.bunge@wsj.com and David Benoit at
david.benoit@wsj.com
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