Billionaire investor Nelson Peltz and the Trian Fund Management firm he leads have lost their legal battle with DuPont (NYSE:DD) today prompting shares to trade six percent lower on wall Street.
The ruling validates the chemicals giant’s decision to prevent Peltz, and four other candidates, from taking up seats on its Board as voted by shareholders at the general meeting in Wilmington, Delaware.
But, twelve members nominated by the CEO Ellen Kullman, were all elected by the shareholders of the 213 years old company, known for Freon, the synthetic fiber Kevlar, used in the manufacture of body armor, tires and aerospace industry.
Apple, Coca Cola, PepsiCo and Mellon Bank of New York have all been forced to concede board seats to ‘activist’ hedge funds, who have claim to large assets, estimated at about US$91 billion by eVestment.
"The vote was close," said Trian, adding that it would continue to monitor the performance of DuPont’s corn seed producing subsidiary Pioneer while warning that the company would miss earnings targets this year.
DuPont's fall on Wall Street reflects the disappointment of investors who had bet on Mr. Peltz’s success including majority shareholders Institutional Shareholder Services, Glass Lewis and Egan-Jones whose recommendations were far well attended.
"We are pleased with the outcome and especially the strong support of our shareholders in our transformation strategy", said Kullman, who spoke of a "new DuPont".
This is the end of an over two-year long media battle which intensified in the last four months, gathering interest from the US business community to gauge the growing influence of ‘activist’ investors.
DuPont is the first large group to win against an activist investor for almost two years. Most activists have often reached a deal with companies ahead of a company’s general assembly, as was the case with DuPont’s rival, Dow Chemical, which confronted activist investor Daniel Loeb.
Some say this is an empty victory for Kullman who strongly opposed Peltz’s accession to the Board, considering him to lack the necessary skills to manage the group.
Yet, Peltz’s determination has forced DuPont to consider restructuring of the group, including spinning off some of the Group’s traditional chemical activities to be consolidated in a separate entity called Chemours next July.
Peltz had envisaged a far deeper restructuring including DuPont’s divisions in agriculture, nutrition and health, high-performance materials, protective equipment, electronics and communications.
DuPont represented the latest of many similar efforts for Peltz, who won battles against Heinz in 2006 and Mondelez in 2014.
Activist hedge funds, when successful, have taken up seats in the companies in which they hold large stakes, urging cost cuts and the shedding of unprofitable activities as well as buying back their own shares to inflate market value.
Forbes magazine has criticized Peltz’s efforts, suggesting that his basis in the case was misleading and that he would have been better off waiting after July 1, 2015, when the Chemours spinoff will be executed, to give investors a sharper view of whether or not Kullman’s management and restructuring plans are working.