The DuPont Company of the future and the Nelson Peltz impact

(AP Photo/Mark Lennihan)
Quarterly earnings at DuPont are due next week. Nelson Peltz will be watching.
Here is Doug Rainey’s commentary.
DuPont has another unwelcome guest.
For many years, it was the whiskey-making Bronfman family. That came after the Wilmington company had taken a fancy to the oil business and acquired Conoco.
Following a takeover battle between DuPont and the family, the Bronfmans ended up with a quarter of the stock in a company founded as a gunpowder mill along the banks of the Brandywine.
About 15 years ago, DuPont spun off Conoco with the consent of the family, which cashed out and departed with billions of dollars. According to rumors at the time, the family had a suite at the Hotel duPont while keeping watch on their holdings.
Management had worried about the Bronfmans putting the company into play if they shopped their stake in an effort to seek the highest bidder.
The Bronfmans, with eyes firmly fixed on Hollywood, went on to sell the flagship Seagram’s beverage business and make disastrous investments in the movie and music business at a time when digital technology was transforming the landscape.
By contrast, DuPont shares soared. The company came out of the recession of 2009 in solid shape as it bought and sold businesses.
It’s more than building a better burger
But just when things seemed to be sailing along under CEO Ellen Kullman, Nelson Peltz came calling.
Depending on your point of view, Peltz either wants to wake up a slumbering company or tear apart a Fortune 500 treasure that has managed to remain relevant for two centuries.
Whatever happens, Peltz seems destined to leave his mark on a DuPont moving further away from its chemical roots.
Peltz, heads Trian Fund Management, a private equity firm, also known as a hedge fund. Trian buys stakes in companies and then attempts to force changes that can drive up the stock price over the short term.
The approach made Peltz a wealthy man as Trian has invested in under-performing fast food giant Wendy’s. Peltz managed to gain a controlling stake in Wendy’s, which merged with Arby’s and later spun off the roast beef chain.
It remains unclear whether his foray did anything to improve the quality of the service or food. The vocal minority shareholder Peltz and Trian then spent more than $1 billion to buy a 2.7 percent stake in DuPont, making plenty of noise about the company not performing up to its potential.
The 2.7 percent stake was about all that this billionaire could afford. Under Kullman, DuPont outperformed a stock market that up until recently had operated in record territory. DuPont’s stock market value now totals $66 billion, making a takeover all but impossible.
But even a guy who owns less than three percent of DuPont has plenty of influence, although a suite is probably out of the question. Trian reportedly met with DuPont executives on many occasions, while doing Monday morning quarterbacking on the company’s performance.
Trian was adamant in seeking to the company split itself in two, even after the recent spin-off of DuPont’s Performance Chemical holdings, taking a chapter from Trian’s effort to force PepsiCo to split up its beverage and snack foods (Frito Lay) operations.
Long before Peltz emerged, CEO Kullman has already established herself as a stockholder-friendly CEO, who was not afraid to spin off legacy businesses.
Peltz was not that impressed, expressing unhappiness with the recent automotive finishes sale to a hedge fund operator, which in turn cashed out with a stock offering.
The business, now known as Axalta, is based in Philadelphia, with offices in Delaware County, Pa., and a research and development presence in Delaware. Peltz claims the spin-off was sold for less than its real value, based on Axalta’s current stock price. .
He even wants DuPont to sell the drapes and furniture, criticizing the company’s modest investment in the Hotel duPont, DuPont Theatre and DuPont Country Club.
Meanwhile , DuPont is selling the DuPont Theatre and the hotel and country club could be next. This may be personally painful to Kullman who grew up in comfortable circumstances in a DuPont-centered Wilmington. Still, the earnings-driven CEO clearly understands that shareholders are not happy with frills.
In his boldest move yet, Peltz has nominated a slate of four directors for the 14-member board of DuPont as a way to gain clout that far outweighs the 2.7 percent stake.
At first, Trian’s moves seemed to be the best of all worlds for shareholders, who would see a higher stock price for DuPont, regardless of whether Trian succeeded.
Positioning DuPont for the future
Then came blow-back from other corners of Wall Street.
A Wells Fargo analyst weighed in with a report that defended Kullman’s strategy and cast doubt on the expertise of Trian and an article in Fortune magazine claimed Peltz’s numbers simply did not add up.
Standard & Poors also weighed in with a downgrade, citing concerns that a break-up of DuPont would weaken its capital structure.
Some of this blow-back may be the result of a skilled shareholder and public relations effort by DuPont. Over the years, the company has enjoyed positive coverage in the business press, even when shortcomings were apparent.
Could Peltz get his slate of directors on the DuPont board? It’s not out of the question. Still, DuPont, under Kullman, has been a solid performer and it may be hard for shareholders to see what Peltz brings to the party.
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Doug Rainey is the editor of the Delaware Business Daily. He has reported on Delaware business for 25 years. Email Doug at drainey@delawarebusinessdaily.com This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Follow Doug on twitter: https://twitter.com/DougRaineyDE.
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