| DuPont CEO Ellen Kullman (Bloomberg) |
Wow! So Trian Fund Management lost its proxy fight with DuPont. Don’t act so surprised, it happens more frequently that most people realize.
As DuPont CEO Ellen Kullman dug in and determined to defend her company against the New York activist hedge fund Trian Fund Management, no doubt many observers snickered that she was naively delaying the inevitable.
After all, it seems like most experienced, aggressive, savvy hedge fund agitators get their way these days.
Yet, on Wednesday Trian fired off a press release admitting that it lost its bid to place four of its nominees, including co-founder Nelson Peltz, on its board of directors. “The vote was close,” Trian said in its announcement.
As it turns out, it is not as unusual for a company to successfully fend off an activist hedge fund firm as many think. According to FactSet’s sharkrepellent.net, 71 board seat proxy fights have gone to a vote in the last five years, including the DuPont battle, by hedge fund firms or by an activist group that included a hedge fund.
The results: Management prevailed in a majority of these battles outright, winning 32 of 71, while dissidents took 30. The other nine were partial dissident wins.
These results should buoy companies that do not want to come to a settlement with activist firms.
The results also debunk the notion that hedge funds — many of whom are among society’s biggest control freaks — always get what they want.
At the annual meeting Wednesday, Kullman reportedly acknowledged that she received a big boost from retail investors, who reportedly account for about one-third of all DuPont shareholders. “They normally don’t vote as often as they should, but apparently we got their attention this time, and they were active,” she reportedly stated.
In its announcement, Trian claimed indirect victory, saying, “Trian’s involvement in DuPont over the past two years has created substantial value for all stockholders. We are proud of the quality of our analysis and the role we have played as a positive change agent at DuPont.”
Trian noted that since it began investing in DuPont stock in mid-2013, the company “upgraded its board of directors, authorized a $5 billion share buyback, began a long-overdue cost cutting initiative, improved the design of its executive compensation program and announced the separation of Chemours with a $4 billion return of capital. We don’t believe these actions would have happened without our involvement.”
Perhaps investors didn’t share Peltz’s vision, which called for the spin off of one of DuPont’s businesses, or believe the company was on a path so bad that it deserved an overhaul of the board.
Or perhaps it’s not as easy as Peltz and other activists think to get their way with a company whose market capitalization is $63 billion. Trian only owns 2.7 percent of the shares.
However, DuPont stock did fall Wednesday by more than 6 percent on the news of Trian’s defeat.
In its announcement, Trian promised to continue closely monitoring DuPont’s performance. Perhaps it will launch another proxy fight next year.
I’m sure Kullman is shaking in her office at the thought of that.
As for Trian, look for the firm to focus more on one of its newer targets, Bank of New York Mellon, which is also in the cross-hairs of San Francisco-based activist Marcato Capital Management.
Bank of New York Mellon is another company with a huge market cap, this time nearly $49 billion. Trian’s stake at the end of the year was just 2.6 percent — although founding partner Ed Garden sits on the board — while Marcato’s position doesn’t even rank among the top-10 shareholders.
It will be interesting to see how BONY responds after Marcato founder Richard “Mick” McGuire III earlier this week took his case on CNBC for replacing the CEO and other changes.
