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Activist hedge fund Trian takes 2.3% stake in DuPont

2:47 PM MDT | October 17, 2013 | —Robert Westervelt

Kullman: Facing pressure from Trian.

Trian Fund Management (New York), led by activist investor Nelson Peltz, has acquired a 2.3% stake in DuPont and met with company management to outline strategic changes, sources tell CW. Trian has met with DuPont chair and CEO Ellen Kullman, as well as other senior management, and presented the company with a white paper containing strategic changes to increase shareholder value.

In 14 August regulatory filings, Trian reports holding 5.8 million DuPont shares, a 0.6% stake, at the end of the second quarter. That stake has since increased to 21 million shares, valued at roughly $1.2 billion based on DuPont’s closing price of $57.53/share on 20 August. DuPont shares spiked more than 5% on 17 July, after CNBC had reported that Trian had acquired a large stake in the company.

“We are aware of Trian’s investment and, as always, we routinely engage with our shareholders and welcome constructive input,” a DuPont spokesperson says. “We will evaluate any ideas Trian may have in the context of our ongoing initiatives to build a higher-value, higher-growth company for our shareholders.”

DuPont last month announced plans to sell or spin off its $7-billion/year performance chemicals unit, which includes titanium dioxide, fluorochemicals, and specialty and industrial chemicals (p. 7). DuPont did not address reports of the Trian stake at that time but said the review was part of its transformation to a “higher-growth, less cyclical company.”

Earlier in August, in advance of the expected disclosure of Trian’s stake, DuPont adopted a cash payout severance plan for senior executives fired following a company takeover and changed company bylaws regarding shareholder meetings and nominations. DuPont was one of the few remaining major US companies and chemical makers that did not provide severance or change control payments for top executives. Under the severance plan, adopted 12 August, senior company officers would receive a lump-sum cash payment equal to one’s doubled salary and target bonus if fired within two years of a takeover. The CEO would receive a buyout package equal to three times compensation. “These are customary plans with provisions similar to those in place for many Fortune 500 companies and our peer companies,” says a DuPont spokesperson. “The purpose of these plans is to reduce uncertainty and distraction for key employees in the event of an impending change in control and to retain key employees.”

Additionally, DuPont has made amendments to corporate bylaws regarding advance notices of special stockholder meetings and the presentation of shareholder nominations and proposals. The company has also included a provision requiring certain shareholder disputes to be heard in Delaware’s chancery court. “We regularly review our governance practices, including our by-laws, to bring them in line with best practices and our peers,” the spokesperson says. “The exclusive forum provision and the advance-notice bylaws we have adopted are part of this process.”

Trian’s Web site states that the company’s “[investment] strategy involves investing in public companies with attractive business models that Trian believes trade significantly below intrinsic value due to operating underperformance.” The firm has published white papers on other investments, offering guidances on how managements can “enhance shareholder value through a combination of strategic redirection, improved operational execution, more efficient capital allocation, and sharpened focus.” Ingersoll-Rand agreed in late 2012 to spin off certain businesses under pressure from Trian, and the company last month called on PepsiCo to separate beverages and snacks.

Peltz and Trian have some chemical industry history. In 1986, Avery, controled by an investment group led by Peltz, purchased the chemical operations of Uniroyal in a leveraged buyout. Peltz subsequently became CEO of Avery. Uniroyal Chemical was sold by Avery as part of a management-led buyout in 1989. Uniroyal was subsequently acquired by Crompton & Knowles in 1996, a predecessor to Chemtura. Trian would later acquire a large stake in Chemtura in 2007.

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