Hedge fund slams DuPont management, nominates new directors

London – Hedge fund Trian Fund Management has raised the stakes in its campaign against DuPont’s management, nominating four directors to the DuPont board and criticising the board’s performance.

DuPonthas, in response, issued a statement outlining its achievements over the past five years, saying it has outperformed many of its peers.

In an 8 Jan statement, Trian stressed that DuPont was its biggest investment and said that if elected, the new directors would optimise the value of the company.

It also voiced concern over cases of what it called “poor corporate governance” and “disconnect from DuPont stockholders”.

“Despite management’s rhetoric about the value of ‘integrated science,’ the reality is that DuPont is struggling operationally,” the hedge fund stated:

Trian went on to say that DuPont’s “earnings per share are down since 2011; organic revenue growth and margins have underperformed peers in five of the company’s seven segments; and management has lowered and/or missed its own guidance to Wall Street for the third year in a row while consistently failing to achieve the revenue and margin targets presented at DuPont’s 2011 investor day.”

The firm further criticised DuPont board for not holding management accountable for what it called “continuing underperformance and repeated failures to deliver publicly stated revenue and earnings targets.”

Trian repeated its call for a separation of DuPont into GrowthCo (Agriculture, Nutrition and Health, Industrial Biosciences) and CyclicalCo/CashCo (Performance Materials, Safety and Protection, Electronics and Communications), in addition to separating Performance Chemicals.

The separation, it argued, would eliminate “an entire layer of” corporate overhead and corporate bureaucracy, and serve as a “catalyst for a ‘clean slate’ to design the ideal cost structure through ‘zero-based budgeting’.”

Trian cited the substantial increase in profitability at Axalta Coatings Systems – DuPont’s former Performance Coatings business – following its sale to a private equity firm in 2013, as “a powerful example of the benefits of focus and the excessive costs incurred by DuPont”.

DuPont issued a release on the same day informing its shareholders of the nomination and defending its performance over the years.

“DuPont’s board of directors and management have a track record of delivering shareholder value. Over the last one-, three-, and five-year periods, DuPont has delivered total shareholder return of 17 percent, 78 percent, and 160 percent respectively, all in excess of its proxy peers and the S&P 500,” the statement said in a clear response to the Trian announcement.

Under the current leadership team, which has been in place since year-end 2008, DuPont has delivered a cumulative capital return of $13 billion to shareholders and 266 percent total shareholder return, relative to the S&P 500 of 159 percent and proxy peers of 133 percent, said the statement.

It added that the achievements were made through “implementing a plan that is creating a higher growth, higher value DuPont.”

On the issue of company separation, DuPont said that the board and management team had “proactively refined the portfolio around three strategic priorities, including the separation of the Performance Chemicals division and seven previous divestitures.

“We are on track with our enterprise-wide redesign initiative which will… contribute at least $1 billion in savings, and we will continue to identify additional areas of productivity across the organization,” it added.

The statement further reiterated that “DuPont has a highly qualified board of experienced professionals… [and] is committed to good corporate governance, with a robust lead independent director role.”

“The Corporate Governance Committee of our board will review Trian’s proposed director nominees and make a recommendation that is in the best interest of all shareholders,” noted the announcement.

Trian’s four nominees are: Nelson Peltz, chief executive officer and a founding partner of Trian and a director of Mondel?z International Inc; John Myers, former president and CEO of GE Asset Management and currently a director of Legg Mason Inc.; Arthur Winkleblack, former executive vice president and CFO of HJ Heinz Co. and currently a director of RTI International Metals, Inc. and Church & Dwight Co Inc.; Robert Zatta, acting CEO and CFO of Rockwood Holdings Inc., a developer, manufacturer, and marketer of speciality chemicals

Image source: DuPont