DuPont spent $15M to keep Peltz off board
The $15 million DuPont spent to keep Trian Fund Management’s director candidates off of its board have some questioning if the company can be declared a total winner in the proxy battle.
“Everyone loses in a proxy fight,” said Charles Elson, a professor of corporate governance at the University of Delaware. “No one comes out in a better position because they are distracting, expensive and not positive for anyone involved.”
Trian Fund Management, a hedge fund launched by activist investor Nelson Peltz, initiated a proxy war to gain four seats on DuPont’s board. The chemical company’s shareholders rejected the Trian candidates and voted for all 12 DuPont nominees. Combined, the two sides spent $23 million on the contest with DuPont incurring $15 million of expenses.
DuPont did not itemize how the $15 million was spent. In a typical proxy war, corporate costs include hiring law and public relations firms; printing and mailing shareholder letters and ballots; print and online advertising and traveling to meet with large institutional investors.
Dan Turner, a DuPont spokeman, said the company sought to avoid the expense of a proxy war.
“We attempted to work constructively with Trian in order to avoid shareholders having to bear the cost of a distracting proxy contest,” Turner said. “However, once Trian launched the proxy fight, we felt it was our responsibility to ensure that shareholders had the accurate information they needed in order to make an informed decision to protect their investment.”
Trian declined to comment, but after the shareholder votes were announced, Peltz said his fund spent $8 million on the campaign.
DuPont’s $15 million price tag is on par with what other companies incurred in previous proxy campaigns. For example, H. J. Heinz & Co. paid $14 million to defend itself against Trian, according to Securities and Exchange Commission filings. Peltz nominated five candidates, including himself, to the ketchup manufacturer’s board. Heinz shareholders elected two of the Trian nominees.
Hewlett-Packard is estimated to have spent $33 million in its 2002 battle with Walter B. Hewlett, the son of company co-founder William Hewlett. The younger Hewlett launched a proxy war to stop the company’s proposed merger with Compaq Computer Corp. Walter Hewlett is said to have paid $32 million in his failed bid land a seat on Hewlett-Packard’s board, according to media reports at that time.
Although both DuPont and Hewlett-Packard successfully blocked the dissident directors from joining corporate boards, CSX Corp. spent $22 million to fend off advances from British hedge-fund manager Christopher Hahn and 3G Capital Partners. Despite the hefty cost, four of the five candidates proposed by Hahn and 3G were elected to the railroad transportation company’s board.
Elson said the money used in a proxy campaign could have been spent on initiatives to improve shareholder value.
“It is $15 million that would have gone to the bottom line,” he said. “The shareholders pay for the dispute.”
April Klein, a professor of accounting at New York University’s Stern School of Business, said the money spent to keep Peltz off the board will benefit the company in the long run because it forced DuPont to review strategies to increase its stock price. She noted the proxy campaign’s $15 million cost is only a small percentage of DuPont’s $66.7 billion capitalization.
“If it gets DuPont to rethink why they became an activist target in the first place, I suspect the $15 million may end up generating a lot of benefits for the company,” Klein said. “You can look at it as a $15 million consulting fee.”
Elson agreed with Klein that the proxy fight could benefit DuPont in the long run, but the company still had to endure expenses it would not have otherwise incurred.
“The upside is DuPont had a good debate, but the downside, which is also important, is that it cost a lot of money and was very distracting,” he said.
Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or jmordock@delawareonline.com.