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 Peltz's Trian Fund Management had sought four seats on the board,
including one for himself, and had pushed the 213-year-old company
to split its businesses to unlock more value for shareholders.
DuPont stock closed down 6.8 percent at $69.33, making it the top
percentage loser in the Standard & Poor's 500 index <.SPX>. This was
the stock's biggest single-day decline since October 2012, and, with
33.5 million shares changing hands, this was the busiest trading day
in the company's history.
The vote ends a high-stakes corporate drama that revved up in
January when Trian announced its dissident slate. The hedge fund
holds a 2.7 percent stake in DuPont, making it the company's
fifth-largest shareholder.
DuPont won the backing of three of its largest shareholders,
Vanguard Group, State Street Global and BlackRock Institutional
Trust, which are index funds, according to a source close to the
matter. Trian won the majority of non-index institutions and would
have prevailed had one of those three index funds voted differently,
the source said.
DuPont Chief Executive Officer Ellen Kullman said the company spent
several months explaining to investors how it is retooling its
business. A key focus has been the planned spinoff of its
performance chemicals business, which supplies titanium dioxide
products and Teflon coatings, in the coming weeks.
“We don’t tell our story well enough and have undergone a lot of
change," Kullman told reporters at the annual meeting, which drew
400 shareholders in DuPont's hometown of Wilmington, Delaware.
DuPont, which said it spent $15 million on its shareholder campaign,
also reached out to its retail investor base, which accounts for
more than a third of shares.
"They normally don’t vote as often as they should, but apparently we
got their attention this time, and they were active,” Kullman said.
Peltz acknowledged the need to spend more time with retail investors
and index funds. But he said DuPont had already made important
changes, including cost cuts and a share buyback, at Trian's
prompting. "We don't believe these things would have occurred
without our involvement," he said.
Before the meeting, it seemed as if Peltz would attain at least some
success in the proxy fight. Trian's alternate slate had won at least
partial public backing from proxy advisory firms such as ISS, as
well as the California State Teachers' Retirement System, which owns
3.6 million DuPont shares.
DuPont's victory could be a model for how other chief executives
could try to fend off activist investors, experts said.
SHADOW MANAGEMENT
DuPont, which had a market value of $68 billion as of Tuesday, had
warned that Trian would try to establish a "shadow management" that
would undermine the company's transformation.
Kullman, a 27-year DuPont veteran who has been CEO since January
2009, is also targeting another $1.3 billion in annual cost savings
by the end of 2017. But growth challenges remain. DuPont last month
reported that first-quarter sales fell 9 percent, their biggest
decline in five quarters.
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Mawer Investment Management Ltd, which owns 900,000 DuPont shares,
voted for the company's nominees partly because management seemed to
be aware of a need for more cost cuts and improvements in
operational efficiency, said portfolio manager Grayson Witcher.
Trian first approached DuPont nearly two years ago with ways it said
the company could improve its operating performance, according to a
filing.
Often, the $11 billion fund works behind the scenes during an
activist campaign. Trian has won board seats at companies including
Legg Mason Inc <LM.N> and more recently Bank of New York Mellon Corp
<BK.N> in settlements rather than through proxy contests.
Trian had pushed DuPont for a more significant break-up: separating
its agriculture, nutrition and health, and industrial biosciences
units from those businesses with strong cash flows but that are more
volatile. Trian had also said recently that it was not wedded to any
specific strategy.
DuPont had offered Trian one seat on the board to resolve the proxy
fight, but insisted that Peltz could not be the nominee.
Peltz said on Wednesday that he would monitor DuPont's performance
and that the stock price could nearly double to $120 by the end of
2017.
Suntrust Robinson Humphrey analyst James Sheehan said he expected
Trian to keep agitating for change.
"If DuPont’s financial performance stumbles," he said, "they can
easily mount this proxy fight again and possibly prevail."
However, analysts speculated that Wednesday's drop in DuPont shares
stemmed partly from anticipation that Peltz will soon unload his
stake.
Evercore Partners Inc and Goldman Sachs <GS.N> were DuPont's
financial advisers. Skadden, Arps, Slate, Meagher & Flom LLP was the
company's legal adviser.
(Additional reporting by Swetha Gopinath in Bengaluru, Svea
Herbst-Bayliss in Boston, and David Gaffen and Nadia Damouni in New
York; Writing by Lewis Krauskopf in New York; Editing by Michele
Gershberg and Lisa Von Ahn)
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