Why Nelson Peltz’s Loss Is a Win for DuPont Shareholders

DuPont spent $15 million to fend off activist investor Nelson Peltz and his Trian Partners, but it’s a small price to pay for long-term shareholders.
DuPont (NYSE: DD) was a media favorite for close to a year while battling activist investor Nelson Peltz and his Trian Partners hedge fund.
Peltz took to task the DuPont management team and CEO Ellen Kullman over their “lackluster” performance. However, in the view of DuPont shareholders, things turned out to be not quite as bad as Peltz painted it. Shareholders recently voted to keep the current DuPont board intact and re-elect all 12 of the company’s board nominees.
In fact, things have been pretty good for DuPont shareholders over the last five years. On a total return basis (including stock price and dividends), DuPont shares are up 134% over the last five years. That’s more than 15 percentage points above what the S&P 500 has managed. DuPont also bested the returns of Syngenta (NYSE: SYT) and Dow Chemical (NYSE: DOW) over that same period and performed right in line with Monsanto (NYSE: MON).
DuPont was able to fend off Peltz by receiving a majority of votes from its large shareholder base of retail investors and major index fund managers, like Vanguard and BlackRock.
About a third of DuPont’s shareholders are retail investors, which is on the high end for a company of its size. So, in a way, the true shareholders did “win” at DuPont.
Ultimately, shareholders voted to support Ellen Kullman’s strategy of boosting overall margins and keeping the company together. Peltz had proposed breaking the company up into multiple parts.
The DuPont-Trian battle could mark the end of activist investors having an upper hand in battling big company management teams. If anything, however, the activist campaign has at least forced DuPont to define its long-term strategy for boosting shareholder value.
Thus, long-term shareholders can look forward to a spinoff of DuPont’s low-growth commodity business, Chemours, with an eye toward focusing on the high-growth businesses like its agriculture segment.
DuPont has become more than just a chemicals company over the years, with nutrition and biosciences businesses as well. But the agriculture business, as noted, is the real prize; it generates about a third of DuPont’s operating profits.
DuPont also has a renewed focus on bringing advanced genetically modified seeds to the market. Then there’s its advanced materials business, which has managed to invent products like Kevlar, Teflon and Tyvek through the years.
But beyond its growth prospects in agriculture and ability to continue inventing new products, DuPont is a shareholder returns story. It has $2.7 billion left on its buyback program and will get a $4 a share dividend from the Chemours spinoff – which it plans to use for a buyback. In total, that’s nearly $7 a share in buybacks (roughly 10% of its market cap) that we could see play out in the near term.
DuPont also boasts a 2.8% dividend yield, making it a solid income stock at a time when income investors are starved. Its dividend yield bests the likes of Monsanto and Syngenta, and DuPont has paid a dividend for 53 years. Its payout ratio is just under 50%. It is also worth noting that that DuPont’s current EBITDA (earnings before interest, taxes, depreciation and amortization) margin is still better than most of its peers.
DuPont shares tumbled more than 5% on the day the company “defeated” Trian, with many short-term investors heading for the exits after realizing there would be no breakup of the company. So while not all shareholders won, it appears that long-term investors are the winners of the DuPont proxy battle.

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