Ag Policy Blog

DuPont Versus Trian Creates a Lot of Intrigue for Agriculture

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Wednesday will be a referendum day for DuPont Co. after an aggressive campaign battle over the company's board of directors.

What happens when shareholders meet at DuPont's offices in Delaware depends heavily on how large investors weigh in over a proxy fight between DuPont's current leaders and Trian Fund Management CEO Nelson Peltz.

The fight certainly seems to hold a lot more drama than Mayweather and Pacquiao delivered.

Trian Partners owns 24.6 million shares of DuPont stock, valued at about $1.8 billion, or roughly 2.7% of DuPont's total stock. Trian has argued since last year that DuPont's recent earnings and stock demand changes in DuPont's leadership. Trian is seeking to put four of its people on the DuPont board, including Peltz. DuPont is calling on shareholders to back its 12 board nominees.

Last week, Trian and DuPont both issued open letters to stockholders posted on websites that mix financial arguments with political zeal.

Trian's play to reshape DuPont raises some concern about a core piece of DuPont's business, DuPont Pioneer. One of Trian's big complaints about DuPont's lack of performance for investors points to $5 billion in research and development on agriculture since 2010 without any new significant biotech breakthroughs. Trian doesn't tip its hand on what its leaders would like to see done with Pioneer, but the complaints about R&D highlight the debate over short-term performance for investors versus long-term development for a company or industry.

Pioneer employs roughly 12,300 people and lists more than 100 research locations around the world. In states such as Iowa, the company has invested hundreds of millions of dollars in new facilities over the last decade.

Trian was started a decade ago and owns large investments in several major companies, as well as putting board members on those businesses, such as Tiffany & Co., Legg Mason, Dr. Pepper, Wendy's, Family Dollar, Heinz, Kraft Foods, Pepsico, Cadbury, Ingersoll Rand, Intercontinental Hotels, Danone and Domino's.

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Trian also has a record of buying up stock and then challenging management over performance.

Trian argues DuPont has $2-4 billion in "excess costs" that could be trimmed from DuPont. The investment group also argues that DuPont's performance in several major sectors hasn't kept pace with other companies.

DuPont has too much structural cost in areas such as research and development and other capital expenses, according to Trian. Agriculture, which accounts for about 40% of DuPont's business, has had $5 billion in R&D investment over the last five years, but Trian argues that has not led to any new biotech traits of significance or other new products. Instead, DuPont was hit with a $1.75 billion royalty agreement with Monsanto following litigation and spending more to license other products made by competitors.

Leading up to Wednesday's shareholder meeting, both Trian and current DuPont management are catering to other large DuPont shareholders who haven't declared their voting stances yet. Every endorsement to their side of the proxy fight generates a news release filled with praise over the announcement.

DuPont CEO Ellen Kullman argues that DuPont has been dramatically reshapes and retooled in recent years, to the benefit of shareholders. The company has already squeezed out $2 billion in productivity savings and expects to produce another $1.3 billion in similar savings by the end of 2017.

While we have more to do, our progress is unquestionable and began long before Trian’s investment. Over the past six years, our ongoing business has generated 19% compound annual growth rate (CAGR) in adjusted operating earnings per share and 6% revenue growth," Kullman wrote. "These results are reflected in the total shareholder return of 266% we delivered during the same period."

Kullman states that while DuPont is working to generate momentum, the company is fending off Trian and "its campaign against DuPont to break up the company and increase both risk and leverage."

The proxy fight seeks to create instability on DuPont's board, Kullman stated. Trian thinks it can do better, but the only company Trian has overseen in the chemical sector went bankrupt. The only Trian leader in the same sectors as DuPont also is a board member for a DuPont competitor, Dow Chemical.

In an interview last week with Forbes magazine, Kullman said "the new DuPont" will launch in July.
"The focus is on agriculture and nutrition, advanced materials and bio-based industrials," she said. "These are three areas where we have seen gross up opportunities and strong, well-established competitive advantages that give us the ability to deliver growth in sales and profits."

Kullman also noted DuPont management has been engaged with Trian for almost two years, but the group seems driven to break up the company. http://www.forbes.com/…

Trian believes DuPont's stock target could be higher than $120 a share by the end of 2017. Trian then criticized Kullman for selling 54% of her shares since 2013 at $72 a share or less. "While DuPont’s CEO speaks of her vision for DuPont, we believe the sales of her DuPont stock reveal her lack of confidence in the future of the Company," Trian argues.

Trian also maintains that DuPont's portfolio is full of business opportunities to sell and allow to grow as stand-alone businesses.

Trian is following a similar strategy the investment firm used in 2006 with H.J. Heinz Co. Trian bought a stake of Heinz -- the ketchup guys -- and pushed a similar board fight. Peltz and others then pushed to cut costs which boosted stock value. Trian later sold out most of its shares, but changed the dynamics at Heinz enough for Berkshire Hathaway and 3G Capital to buy the company in 2013 for $28 billion. Berkshire is now moving to merge Heinz and Kraft, which would effectively create the fifth-largest food and beverage company in the world.

DuPont: www.dupontdelivers.com

Trian: www.dupontcanbegreat.com

Follow me on Twitter @ChrisClaytonDTN.

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McFly
5/11/2015 | 3:33 PM CDT
just another example of what happens when one of American agriculture's great founding companies becomes bait for bigger fish. Without substantial R&D, a seed company such as Pioneer will be dead in the water. Can you say: Monsanto's hostile bid for Syngenta !?!