Trian New White Paper On DuPont "Performance and Accountability" - Hedge Fund Alpha (formerly ValueWalk Premium)

Trian New White Paper On DuPont "Performance and Accountability"

Trian fund’s new white paper on DD is out – in the latest stage in the proxy war – check it out below.

Trian Fund Management presentation on E.I. du Pont de Nemours and Company titled, “A Referendum on Performance and Accountability.”

Executive Summary

  • Trian beneficially owns ~$1.9bn of the outstanding shares of E.I. du Pont de Nemours and Company (“DuPont” or the “Company”), making Trian one of DuPont’s largest stockholders; this compares to the existing independent directors, who collectively beneficially own ~$20 million of shares (of which ~$2.6 million are shares directly or indirectly held by them)
  • There have been many positive developments at DuPont since Trian’s initial investment in March 2013; we are particularly pleased that DuPont appears to acknowledge the need to upgrade its Board of Directors with individuals that have “fresh, independent, highly relevant perspectives”(1); the Trian nominees offer stockholders the opportunity to further reconstitute the Board by adding four individuals that possess strong track records of value creation, relevant operating expertise, and new perspectives
  • We would have preferred to avoid a proxy contest and take pride in our reputation as long-term stockholders who work constructively with boards and management teams; we have been exceedingly patient for nearly two years
  • However, it has become clear to us that we need board representation because management continues to falter as exemplified by the fact that DuPont earnings in 2012, 2013, 2014 and, per company guidance, 2015 (which we believe they will struggle to make) are lower than DuPont’s 2011 earnings, despite significant capital investments

– In December 2013, we agreed to remain silent in 2014 and give management a chance to prove they could deliver on 2014 financial goals despite our skepticism

– At that time, we were encouraged by the Lead Director to hold the Board accountable if the Company didn’t achieve its 2014 guidance

– In June 2014, after DuPont announced that it would miss guidance for the third year in a row, we offered to settle for the addition of one Trian Principal to the Board; the request was rejected in August 2014

– In January 2015, DuPont continued to disappoint, issuing guidance that 2015 earnings will be below 2011 earnings… for the fourth year in a row

  • Trian views the proxy contest as the democratic process at work; a true election that allows stockholders to hear opposing points of view and decide if all stockholders will benefit from the election of Trian’s nominees who will seek to assure accountability of management and enhance engagement in the Boardroom

Trian’s Goals

  • While Trian has already made an impact on value creation at DuPont, there is much more value to be unlocked; a vote for Trian’s nominees is a vote for four highly qualified individuals who will seek to work collaboratively with the Board to:
  1. Assess the corporate structure and determine whether management is capable of achieving best-in-class revenue growth and margins with the existing portfolio or whether there is a need to separate the portfolio; Trian nominees are open-minded as to the best path forward
  2. Eliminate excess corporate costs and ensure productivity initiatives hit the bottom line
  3. Assess capital allocation including organic investments (R&D, capital expenditures, industrial biosciences initiatives), M&A, and balance sheet efficiency / capital return policies (increasing dividends)
  4. Improve corporate governance including transparency of business performance, alignment of compensation programs with performance, and overall accountability for promised performance

DuPont Has Chosen The Path Of “Disruption”… Not Trian

  • DuPont asserts that “Trian has chosen this path [a proxy contest] with the potential to disrupt our Company at a key stage of execution against our plan”(1)
  • We reject this notion, as Trian has consistently and purposefully avoided proxy contests over the years

– Trian has had only one proxy contest since inception a decade ago (Heinz); we have been able to reach an agreement with the company in the 12 other situations where we requested board representation

– This includes agreements with some of the largest and most prominent companies in the world, such as PepsiCo, Mondel?z, Ingersoll-Rand and The Bank of New York Mellon

– There have been many situations where we believe we could have gained more seats than for which we had settled, had we forced a proxy contest, but we compromised to avoid unnecessary distraction and work constructively and collegially in the boardroom

  • However, Trian’s efforts to compromise with DuPont since 2013 have been summarily rejected

– We have repeatedly offered to settle by adding a Trian Principal to the Board

– In return, we pledged to work constructively to unlock value from a minority position – one where we could only influence events by convincing the majority of board members with “the power of the argument”

  • Disappointingly, this current situation could have been resolved at many different stages since 2013, but DuPont has not shown any interest in pursuing a settlement involving a Trian Principal


See full PDF below.


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