Nelson Peltz's Trian Management wants to take credit for hastening
On Monday, DuPont tweaked the bylaws of Chemours ahead of its spinoff this year, lowering the threshold for shareholders to call a special meeting from 35% to 25%, and offering investors the ability - in 2016 - to vote on whether or not they want the spun performance chemicals unit to have a classified or declassified board. Those moves were made by DuPont in response to Trian's criticism of governance at Chemours, which it characterized as "poor" and having punitive anti-takeover measures.
However, at a time when activist campaigns sometimes devolve into an exercise in score-keeping, Trian won't take a bow for the governance changes. It issued an almost 2oo-word screed against DuPont and its CEO Ellen Kullman in response to the proposed changes. Trian believes that the vote on classification is an empty gesture, which would maintain a staggered board for Chemours until 2017 at the earliest. The funds complaints regarding anti-takeover measures also went un-addressed, a spokesperson told Forbes.
On a day when brand name institutional investor Fidelity was reported by Reuters to be frustrated with the proxy war and pressing for a peaceful settlement, Trian's response to the governance changes at Chemours indicates there's plenty of fight left in the activist fund with six weeks to go until the company's annual shareholder meeting.
"As we have noted throughout this proxy contest, Trian believes the DuPont board adopted poor corporate governance and punitive antitakeover measures in its announced plan for Chemours. DuPont’s belated decision to make limited changes to the corporate governance provisions at Chemours, in direct response to more comprehensive and substantive changes suggested by Trian and following a stockholder lawsuit, does not come close to best in class corporate governance where there would be provisions guaranteeing the annual election of directors immediately following the spinoff," a Trian spokesperson told Forbes.
"Even as revised, Chemours’ staggered board provisions won’t be eliminated until 2017 at the earliest. We believe many DuPont stockholders recognize that Trian has been the key driver in holding DuPont’s management and board accountable since we invested nearly two years ago and this, coupled with our large ownership stake, necessitates a Trian principal backed by our full analytical resources, in the DuPont boardroom. This is all the more important given DuPont’s chronic underperformance; EPS in 2015 is projected to fall below 2011 EPS for the fourth consecutive year," the fund added.
DuPont sees the governance at Chemours differently. The company argues Monday's change strikes a strong balance, and one that responds to feedback from shareholders.
"We believe it is a shame that Trian is trying to exploit our responsive corporate governance practices for their own self-serving purposes in the context of the proxy contest," DuPont said in a statement to Forbes.
"Consistent with corporate governance best practices, we initially adopted corporate governance provisions for Chemours that are typical for a company being spun-off to protect the interests of all shareholders and provide stability during the initial period of being public. Following the initial filing, we further evaluated the provisions and discussed them with a range of shareholders. While we heard from shareholders that they appreciated the benefits of classified board, we also considered the governance provisions at other spin-offs in 2015, and thought a sunset provision based on a shareholder vote struck a good balance. The timing of the classified board vote is quicker than most declassifications, where boards are declassified over a multi-year period," the company explained.
The mechanics of the Chemours spin is just a small piece of Trian and DuPont's standoff. The bigger question is whether the activist fund will succeed in gaining entry into DuPont's boardroom this proxy season. Trian wants to keep CEO Kullman in place but use significant board representation to take hand in the company's strategy and operations. Fearing a shadow board of directors, DuPont has only offered a single seat.
Earlier in 2015, Trian asked DuPont to accept four of its board nominees at the company's annual shareholder meeting. The fund stipulated that Nelson Peltz and one Trian nominee be added to DuPont's board, while two Trian nominees would be added to the Chemours board. It also called for governance changes at Chemours such as lower anti-takeover thresholds.
DuPont declined that proposal, and instead offered one board seat to Trian so long as it wasn't Mr. Peltz, a deal the fund quickly declined at a meeting in Chicago. Following that failed settlement offer, DuPont announced the appointment of Jim Gallogly, the CEO who led a turnaround of
Since those nominations, DuPont CEO Kullman and Trian's Peltz have met in Manhattan to further discuss a settlement, however, it appears little new ground has been made.
Trian argues that in spite of a series of asset sales and planned spinoffs, DuPont continues to operate as a conglomerate, underperforming overall markets. Were Trian to gain significant board representation, it would likely argue for a split of DuPont into three parts; a so-called GrowthCo that includes DuPont's agriculture, nutrition and industrial biosciences divisions, a CyclicalCo or CashCo of DuPont's performance materials, safety and electronics operations, and the performance chemicals unit.
DuPont, by contrast, views Trian's plan as far too risky. The company would rather keep its businesses together after spinning Chemours, maintaining manageable debt burdens that would allow for continued access to commercial paper markets. Additionally, DuPont believes Trian’s proposal doesn't account for separation costs or lost cross-selling opportunities. Meanwhile, CEO Kullman believes DuPont should stay the course on a multi-year initiative to streamline its operations and divest non-core businesses.
"DuPont’s current Board and management team have a well-documented record of taking decisive action since 2009 and continue to execute on a transformative strategy that has delivered clear results, many of which were initiated or executed long before Trian’s investment. This strategy has delivered results," the company added in its Monday statement to Forbes.
Under current management, DuPont has delivered total shareholder returns of 266% compared to 159% from the S&P 500 and 133% from its proxy peers, the company added.
