By Jacob Bunge
The proxy battle between DuPont Co. and Trian Fund Management LP
pits the industrial giant against one of Wall Street's most
successful activist investors, and it involves financial
institutions that manage billions of dollars. But the outcome could
come down to such individual investors as retired
electrical-utility manager Roger Rinehart.
The 68-year-old resident of Dayton, Ohio, has about 100 DuPont
shares in his personal portfolio, and he has been inundated with
pitches from both sides--so much so that he asked DuPont to stop
calling him after about their third try. He said he hasn't yet
voted his shares for either side's board nominees, though he's
leaning toward Trian's. "I have no quibble with the stock price,"
he said, but the company's performance "seems stagnant."
Individual investors like Mr. Rinehart are typically wallflowers
in big corporate-governance debates. But at DuPont they account for
a third of total shares, more than is usual at big companies. And
with the May 13 vote to pick directors expected to be close, they
have become a wildcard in one of the biggest proxy contests in
history.
Trian has nominated four candidates for DuPont's 12-member
board, including Trian Chief Executive Nelson Peltz. It wants
DuPont to slash expenses and consider breaking up the company.
DuPont responds that a breakup is a bad idea that needlessly
distracts from its plan to refocus on more-profitable products,
which executives say is succeeding. Neither side has shown signs of
backing down, though a settlement is always possible.
Shareholders can vote using a proxy card from one side or the
other. Trian's card counts as votes for the eight DuPont directors
Trian is supporting, in addition to Trian's four nominees, unless a
shareholder explicitly withholds votes from any of the names. The
new board will be composed of the 12 nominees who win the most
votes.
While both sides are traveling the country to court professional
money managers, they have also carpet-bombed mom-and-pop
shareholders with emails, phone calls, and advertisements in the
News Journal, the hometown newspaper in Wilmington, Del., where
DuPont is based. A Google search for "DuPont Trian" brings up
jousting websites created for the proxy contest: dupontdelivers.com
belongs to management, and dupontcanbegreat.com is Trian's.
"As a DuPont shareholder, you have a powerful voice in this
matter," DuPont Chief Executive Ellen Kullman said in a letter
Tuesday, one of seven the company has sent to shareholders. "Your
Board and management are determined to prevent the negative and
far-reaching effects on our shareholders, customers, employees and
the communities in which we operate," the letter said of Trian's
campaign.
"It is time for change at DuPont," Trian executives countered
Wednesday in the latest of their five letters. "Your vote is
important, no matter how many or how few shares you own."
Robert Sacino, a retired professor, said he's pleased with
DuPont, shares of which have nearly tripled during Ms. Kullman's
tenure. "I'm not opposed to activism," said Mr. Sacino, 63 years
old, who lives in New Rochelle, N.Y. "But I don't think the target
is right for Trian."
Greg Poore believes Trian's Mr. Peltz will help tighten DuPont's
focus on meaningful innovation and streamline the 212-year-old
company's operations. "DuPont's one of those classic corporate
cases of the 'ivory tower' corporate directors who have lost
touch," said Mr. Poore, a Fountain Hills, Ariz., based investor who
voted his shares for Trian's nominees.
Parties in proxy fights often reach out to individual investors,
but they tend not to focus on them because such investors rarely
turn out in big numbers, whereas mutual-fund firms have fiduciary
duties to vote their shares, say corporate governance experts.
DuPont, with a market capitalization of about $66 billion, has
estimated it has about 600,000 individual investors, holding about
33% of its equity.
That compares with about 28% at typical large-cap companies,
according to Broadridge Financial Solutions Inc., which manages
companies' communications with investors.
U.S. retail shareholders last year voted about 29% of their
shares in corporate governance matters, down from about 40% to 45%
roughly a decade earlier, according to Broadridge.
The boardroom battle has been costly. Trian estimates it will
spend $8 million on it. DuPont puts its tally at $15.4 million.
DuPont's proxy solicitor, which canvasses shareholders to gather
votes, has about 200 employees working on the fight, while Trian's
has about 175, according to regulatory filings. Other recent proxy
campaigns typically had closer to 50 solicitors working on each
side.
Some mutual-fund managers back DuPont's management while others
say that Mr. Peltz's track record of helping to revamp companies
should earn him a DuPont seat. Since late April, three proxy
advisory firms, which advise financial institutions on corporate
governance matters, have endorsed Mr. Peltz's candidacy. A fourth
has backed all of DuPont's nominees.
Many fund managers have to own shares of companies like DuPont
that are part of key stock indexes. But individual investors who
are dissatisfied with a firm's performance can just sell, so those
that do hold shares tend to view sitting executive teams somewhat
more favorably, according to academics.
"When they do vote, retail investors tend to side with company
management more than institutions," said Alicia Davis, a law
professor at the University of Michigan who studies shareholder
behavior. "This makes individual investors key players in close
votes accompanying battles for corporate control."
Some shareholders say their holdings are about more than share
performance and dividends. An estimated 2% of DuPont shares are
owned by investors based in or around Wilmington, including many
current and former DuPont employees or their relatives.
Alan Behringer, a Wilmington-based lawyer, inherited DuPont
shares from his father, who worked for the company for 41 years.
Mr. Behringer says he fears Trian could drastically alter DuPont's
research and development, potentially hamstringing long-term
competitiveness. He acknowledges a "built-in bias in favor of
existing management."
"I owe a lot to the fact that the DuPont company was able to
provide [my father] with a good job for 40 years," said Mr.
Behringer, 69, who voted his 180 shares for DuPont's directors.
"That's the way a lot of us in Delaware feel."
David Benoit contributed to this article.
Write to Jacob Bunge at jacob.bunge@wsj.com
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