| Nelson Peltz, Trian Fund Management (Bloomberg) |
At first glance, New York–based activist hedge fund firm Trian Fund Management’s planned proxy fight with DuPont in a bid to gain four board seats may seem a little audacious and risky. After all, the venerable chemical giant boasts a market capitalization of about $60 billion and has been around for more than 200 years. Meanwhile, Trian owns just 2.7 percent of DuPont’s shares.
Conventional wisdom says that activists have a better chance to effect change at smaller companies, where these investors can amass bigger and theoretically more influential stakes. However, a look at the largest market-cap companies targeted by hedge funds in the past year or so alone shows that in most such campaigns, either the activist has succeeded or the intended campaign has yet to fully play out, according to data from corporate governance research firm FactSet Research Systems’SharkRepellent.net and Alpha’s own analysis.
For example, longtime activist investor Carl Icahn’s continuing campaign to convince Apple to use a sizable amount of its cash to buy back shares still has not succeeded. But it hasn’t failed either.
In late 2013, Icahn filed a shareholder proposal calling on Apple, which has a market cap of about $60 billion, to buy back stock. He subsequently removed the proposal after proxy adviser Institutional Shareholder Services backed Apple.
Then in October 2014 Icahn sent a letter to Apple CEO Timothy Cook praising the company and again urging it to buy back stock, asserting that the company could be worth $203 per share. Apple still has not done that blockbuster buyback, and its stock is now trading at about $111.
Late last year David Einhorn’s Greenlight Capital disclosed that it had added Amazon.com to a “bubble basket” of stocks it is shorting, but the move has also not yet proven successful. Since the New York–based equity hedge fund firm announced its short position — which is activist in nature — on November 4, the Internet retailer’s stock has moved up $4 or so, to more than $298 per share. Amazon has a $138 billion market capitalization.
Also last year, Daniel Loeb’s New York–based Third Point called on Amgen to break the $104 billion market-cap company into two separate companies. However, less than three months later, the biotech giant has not acted on the recommendation. This one also has not clearly played out yet.
On the other hand, Third Point did work out a settlement with Dow Chemical Co., a $52 billion market-cap company, under which the New York–based hedge fund firm was able to obtain two board seats. Under the deal, Dow agreed to add four independent directors, and Third Point agreed to a one-year standstill and voting agreement and to call off its proxy fight.
Icahn’s campaign last year against online auction giant eBay, a $70 billion company, was also successful. Last April, eBay agreed to appoint an Icahn nominee, David Dorman, to its board of directors, thus averting a proxy fight. Then in September it agreed to spin off PayPal after initially rebuffing Icahn’s suggestion.
Last September, Walgreen Co., a $61 billion company at the time, appointed Jana Partners founder Barry Rosenstein to its board of directors and agreed to appoint another independent director nominated by the New York–based activist hedge fund firm. On December 31, Walgreen completed the acquisition of the remaining 55 percent of Alliance Boots that it did not own and reorganized into a holding company, now called Walgreens Boots Alliance.
And in 2013, Jeffrey Ubben’s ValueAct Capital Partners surprised the investment community when it initiated an activist position in Microsoft with just 0.7 percent of the stock, seeking a board seat. Sure enough, one month later, longtime president Steven Ballmer announced he would retire within a year, and several months later the San Francisco–based hedge fund firm obtained a board seat.
So, given Trian’s track record and hedge funds’ success with the largest companies, chances are DuPont will come back with some sort of compromise proposal before the annual meeting takes place, probably sometime in late April.
