By Liz Hoffman
Among the litany of criticisms Nelson Peltz is spraying at
DuPont Co., one set takes aim at the governance of a company DuPont
is spinning off.
In launching a fight for four board seats at the Delaware
chemicals giant Thursday, Mr. Peltz's Trian Fund Management LP
complained that DuPont's performance-chemicals unit, soon to be
spun off into a new company called Chemours, is girded with
provisions that silence shareholders.
Trian says the corporate defenses show that DuPont, which is
setting up the new company's governance structure, doesn't welcome
shareholder input.
"They had a blank sheet of paper to design a corporate structure
to go forward with good governance or bad governance" and chose the
latter, Mr. Peltz said in an interview.
Data show many spinoffs include similar structures. With a
public company spinoff, a company breaks off a division and creates
new shares, typically distributed in pro-rata fashion to the
original shareholders. Advisers who help write the governance rules
for these fledgling companies say spinoffs are especially
vulnerable hostile takeovers or interference from activist
investors, which typically buy stakes in companies and then press
for changes.
"DuPont follows corporate governance best practices," a
spokeswoman said in a statement. "Chemours' governance is
consistent with common practice for a company being spun-off to
protect the interests of all shareholders and provide stability
during the initial period of being a new public entity."
Chemours, which is expected to start trading early this year,
will have a staggered board, which makes it harder for dissidents
to quickly win board influence. The company won't allow investors
to act by so-called written consent, a less formal way to oust
directors. Changing the charter requires support from 80% of
shares--a high bar, especially given that many investors simply
don't vote in corporate elections.
Chemours will require support of 35% of shares to call a special
meeting. That is higher than many companies. For example, 25%
sufficed at Allergan Inc. during an attempted hostile takeover last
year, though about 40% of S&P 500 companies don't give
shareholders the right to call a special meeting at all, according
to researcher FactSet.
In comparison, about 55% of spinoffs that started trading in
2014 have a staggered board, according to FactSet. Two-thirds don't
give shareholders the ability to force a special meeting, and 72%
set a high bar for shareholders to vote to dismantle these
defenses.
If the goal is to ward off activists, the fear is justified. Of
39 spinoffs that have gone public since 2012, about half count an
investor with a history of activism among their 10 largest
stockholders, according to FactSet.
Advisers say spinoffs are more vulnerable to threats in the
early going, when their shares trade hands quickly and activists
pore over newly released financials and research new management
teams.
David Benoit contributed to this article.
Write to Liz Hoffman at liz.hoffman@wsj.com
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