DealLawyers.com Blog

A few days ago, I blogged about these law firm memos describing the end result of Trian’s attempt on DuPont. Here’s an excerpt of this blog from “The Activist Investor” looking at it from the activist’s perspective:

Eye on the prize – Trian actually won: Most accounts that pick winners and losers deem Dupont the winner. Yet, as of this week, Trian gained around $200 million on its shares, which includes a 6% loss after Dupont announced the outcome last week. That’s about 15% on its investment, not what Trian wants (it pegs Dupont at $125/share, up from $70 today) but only a “loss” if we think in terms of BoD seats.

Don’t count on ISS and Glass Lewis: The major proxy advisors supported Trian. A handful of major institutional investors ignored this, and individual investors don’t know or care. These two groups decided the vote.

Avoid situations with large individual investor holdings: Individual investors own over 30% of Dupont shares. Reportedly, most voted against Trian. In most situations, companies start with the trust of these shareholders, and have decided advantages in communicating with them.

Institutions may not trust activist investors: Several major institutions voted against Trian, including BlackRock, Vanguard, State Street, and CalPERS. These sophisticated firms can discern how Dupont underperformed its peers. Trian also wanted only four out of twelve BoD positions, so it didn’t ask for much. It seems at least a few institutions continue to view activist investors as short-term opportunists.

Simplify the thesis: Trian took on a complicated job. It needed to persuade shareholders that Dupont has underperformed, and that its plan to break up the company would rectify that underperformance. Dupont did beat the S&P 500 (but not its peers), and argued credibly that its conglomerate structure makes sense. The endless SEC filings, letters, white papers, presentations, and news releases only led shareholders deeper into the weeds. A complex thesis makes suspicious institutional investors more skeptical, and confuses low-information individual investors with short attention spans.

A good settlement is worth it: Trian could have accepted a couple of BoD positions, not including Nelson Peltz. Trian needed Peltz to gain a BoD seat. Other investors likely would not care whether Trian wins four seats and includes Peltz, or settles for two that do not. Either are better than no seats, as the 6% share price decline demonstrates.

Smaller companies know less: Big corporations like Dupont can retain the best advisors, and have knowledgable directors that can deal cleverly with activist investors. Smaller companies lack these resources, and make for a fairer contest.

Most of all, the vote at Dupont does not represent a significant milestone in activist investing. No turning point here, no more or less than other activist situations involving iconic companies and impatient investors. As long as portfolio companies have entrenched, lazy, deceitful, or inept management and BoDs, we activist investors will continue to “win” and “lose” proxy contests, and BoD seats, and debates over balance sheets, operations, and strategy.