DealLawyers.com Blog

Nelson Peltz certainly is in the news after losing his battle with DuPont. Here’s an excerpt from this interesting blog by “The Activist Investor”:

Peltz started small, and got bigger. For the first five years, the market cap of his activist investments averaged $5 billion, with companies as small as Cheesecake Factory ($1.5 billion). That average excludes Kraft, with a $56 billion market cap. Since then, the market cap of his activist investments averaged $52 billion, which includes PepsiCo at $125 billion. He starts with smaller investments that he holds for awhile without any activist intent. He then adds to the position as the activist strategy takes shape. Dupont first showed up on Trian’s roster on June 30, 2013 with $300 million. He now has $1.8 billion in shares.

Trian has Form 13D filings on 8 of the 16 companies, so it eventually gets to at least 5% of outstanding shares. There, he has credibility with other shareholders, and influence with management. With almost $10 billion in assets, and the need to research and work on a limited number of companies, he invests in companies with an average market cap of $52 billion.

Michael Levin – the force behind “The Activist Investor” – subsequently sent around this note from one of his readers:

In your blog post, you pose the question as to why Peltz would want to go on the board of DuPont. While I think your comments regarding this are correct, I would suggest that there is more to it and that this would be applicable to any board role that he [or anyone – MRL] seeks. Peltz, like the best private equity guys, deeply understands the value creation process unlike the vast majority of individuals who serve on corporate boards. In that sense, he can bring, as do the other more successful activists, a level of both general value creation skill/focus and as importantly, discipline, to the board that is undoubtedly absent from not only the boards of companies that he targets but also, in my view, from the majority of public company boards.

I have restructured a number of underperforming company boards. One criteria I always seek is an individual who comes from the private equity (or even mezzanine lender) world in order to ensure that this general value creation mindset and skill is present in at least one other director besides myself. For the same reason, I believe Peltz seeks a board seat at target companies even when he may not have the experience with chemicals that he has with food. That said, the degree of analysis and research that Trian does on target companies does equip Peltz, Garden and any other nominee they may have with an in-depth and value creation oriented grasp of the company that is lacking in the incumbent board members (until they read a Trian white paper).