DuPont win won't scare
off the activists
Goss, The (Wilmington, Del.) News Journal)
Corporate America, but you're no safer from the badgering tactics of
hedge fund activists than you were before chemical giant DuPont
roundly defeated billionaire investor Nelson Peltz.
Wednesday, Peltz's hedge fund firm, Trian Fund Management, lost its
bid for four board seats at the chemical company it was seeking to
split into pieces. Trian, which owns a 2.7% stake in DuPont, boasted
afterward that "the vote was close," but it still failed to secure
even a single seat.
Trian's resounding defeat, companies should think twice before
declaring victory. Hedge fund activists like Carl Icahn and Dan Loeb,
who push for changes that will boost stock prices, are bigger and more
successful than ever before. And Trian's loss to DuPont won't likely
“I think he will lick
some wounds but will be back at it.”
Jeffery Sonnenfeld, Yale professor
Jeffrey Sonnenfeld, the Yale professor who publicly criticized Peltz
for his fight with DuPont, agreed that Peltz's loss in Delaware won't
do much to stop large investors from making demands and then
threatening board fights, known as proxy contests, if they don't get
he will lick some wounds but will be back at it," Sonnenfeld of Peltz
in an interview. "It's certainly a setback, but it's not a fatal
assets under management in the activist space are now over $100
billion, according to consulting firm PWC. Meanwhile, activists are
winning more often than ever before — even as the number of total
fights is shrinking and as they target bigger companies, like Apple
73.1% of proxy fights resulted in a board seat or some other company
concession, according to data researcher FactSet. That's up from 57%
in 2008 and 52.3% in 2007. The rise comes even as the total number of
fights has fallen since the heady days before the financial crisis,
according to FactSet.
the number of settlements is also at new highs, suggesting that
companies are more likely to give in to an activist's demands than put
up a costly fight. Last year, 55% of proxy fights resulted in a
settlement before shareholders could vote, up from 31% in 2009 and 43%
in 2008, according to FactSet.
A loss is
embarrassing, for sure. But Peltz isn't the first big-name activist to
fall flat on his face and make a comeback:
Icahn bowed out of his bitter proxy battle with online retailer eBay
in April 2014. A few months later, the company agreed to follow
through on Icahn's plan to spin off its money transactions business
PayPal. It also gave him a seat on the board.
Smith of Starboard Value lost his 2012 battle to win board seats at
email provider AOL. The hedge fund went on to other wins, however,
including overthrowing the entire board of Darden Restaurants, which
owns Olive Garden, last year.
Ackman famously choked up at the Target shareholder meeting in 2009
after he lost his attempt at board seats. The founder of Pershing
Square Capital Management went on to other wins, however, leading to
returns of over 40% last year when the average hedge fund returned
closer to 2%.
loss does serve to remind increasingly emboldened activists to tread
carefully when it comes to companies that are performing well, like
DuPont, experts said.
going to have to pick his battles better," Sonnenfeld said. "Where
he's good is going after truly sick companies. He should pick the
more activists go after large, healthy companies for things like
buybacks and dividends, they need to remember to play nice — like
Icahn at Apple.
than wage an ugly proxy contest, Icahn gently urged Apple CEO Tim Cook
to buy back more stock. In April, Apple said it would boost its
buyback program to $140 billion from the $90 billion level announced
really the first time someone has tried to replace a board that is
outperforming," said Ken Squire of 13D Monitor on Peltz's fight with
DuPont. "Activism is close, but it's not there yet," said Squire, who
tracks proxy contests.
thinks Peltz may not be the last activist to battle for board seats at
a healthy company, however. He noted that activist investing has come
a long way since 2005, when boards had to be in pretty bad shape for
an activist to win. As such, it's only a matter of time before
activists start winning even at winning companies, he said.
pushing the envelope and being a pioneer, and that's what happens with
pioneers. It takes some time," Squire said.
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