DUPONT – WHY LEADING INVESTORS CHANGED COURSE?
In the first quarter of 2015, more than 70% of institutional investors with actively managed positions in DuPont polled were forthcoming in their views that Ellen Kullman needed to be replaced and a shake-up of the board was necessary. An even greater number of such investors declared themselves in favor of Mr. Peltz’s agenda. Today the stock headed south on news that DuPont’s slate had defeated Trian’s nominees, including Mr. Peltz himself. A number of institutional investors had second guessed their positions. Why?
The two most frequently followed Proxy Advisors (ISS & Glass Lewis) recommended election of Mr. Peltz’s nominees, yet such ordinarily influential recommendations were set aside by many investors near the eleventh hour. What happened here? A lot it seems. Firstly, did Ms Kullman win this fight or did Mr. Peltz lose it? The answer is both. However, since it was Trian’s to lose, Mr. Peltz’s unfolding image amongst investors seems to have made the greater contribution to this unexpected result.
Shareholder votes are repelled by managements which appear to be too sure of themselves. Investors will sometimes side with an activist to oust recalcitrant regimes, CP being a prolific recent example. However, Trian’s own version of assertiveness took a toll. Investors are thoughtful beasts whose thinking is, after all, their primary professional tool. It seems Mr. Peltz came off a little too sure of the near term results of what increasingly became perceived to be an opportunistic approach.
By contrast, Ms Kullman appeared to be increasingly sanguine about long term value issues. Her early moves toward conciliation with shareholder dissent, namely appointing new directors and cost cutting were re-considered by investors as were her deep roots in DuPont and Delaware. The continuation of Ms Kullman emerged as being a predictable outcome versus investors’ perceived uncertainties relating to their perception of a shorter term Trian agenda.
DuPont’s campaign against Mr. Peltz’s team cited the results of his recent activist campaigns. These outcomes were leveraged by DuPont as evidence of the uncertainties posed by Trian. As a result Trian’s record became ‘perceived’ to be inadequate evidence of a ‘safe hands’ outcome.
Some Index Investors have voted for the conservative agenda of predictability as have some elements of the retail base of long term holders. An as yet undetermined number of strategic investors reversed themselves and followed suit. We will soon confirm the numbers.
What now? Ellen Kullman and her board remain rated at the lowest levels of shareholder confidence and DuPont remains a vulnerable candidate for activism. According to active institutional investors in the stock, Mr. Peltz was and is not wrong about DuPont’s vulnerability. Moreover, investors report that Mr. Peltz has had a distinct impact on investor consciousness. His plan however failed to persuade investors that the outcome of his changes and the manner of Trian’s intervention would deliver sufficiently predictable and prudent change. For one thing the strategic holders of DuPont clearly wanted a new CEO and Mr. Peltz did not deliver that to a level of investor satisfaction sufficient to a vote of approval. While Mr. Peltz’s analysis proved useful to shake-up DuPont as it was, his slate may have fared better by having a new CEO in hand. Ms Kullman ran against a phantom. Trian’s record did not fill the leadership gap. Some investors felt that an ongoing relationship between Trian and DuPont management was unviable.
Many investors felt that the parties were likely to reach an agreement. Absent such an accommodation, the proxy vote triggered a re-think.
DuPont remains vulnerable to another intervention by investors who propose viable alternative leadership with a long term agenda. Ms Kullman has been given a new management lease. There is, however, a long way to go to persuade institutional shareholders who actively manage their investments that DuPont is in the best and safest hands.
This story may mark a signal change in the reliance on and influence of Proxy Advisors and the demands on activists to present a more powerful management solution along with their resonance of shareholder unrest.
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