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Activist disputes professor's analysis of performance


The article and video below report a controversy about an example of activist performance cited by Professor Jeffrey Sonnenfeld of the Yale School of Management in an opinion published April 1, 2015 in The Wall Street Journal: "Activist Shareholders, Sluggish Performance." The dispute was initiated by Nelson Peltz of Trian Fund Management in the following April 2, 2015 morning video interview (which is no longer available on the CNBC website, but was accessible in the NBC archive as of April 4, 2015), in relation to which Trian subsequently filed an April 3, 2015 4:31pm SEC Schedule 14A report to correct Mr. Peltz' erroneous overstatement of his flagship fund's performance.

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Professor Sonnenfeld has asked the Forum to present his following response to the issues raised by Mr. Peltz (emphasis in original):

1)  The key question is: why does it have to be only HIM as the suitable rep on board and not candidates like Ed Breen, James  Gallogly, etc. whom he’d desired previously?

2)  The key performance data is that 5 of 11 firms underperform the S&P when he joins the board. If Trian/his personal board PRESENCE (not investment history) are so key to tie up this company with the expensive proxy battle, what has company performance been like when he joins boards?  Mr. Peltz wants to look at his investment history but the entire conflict is over his insistence on his board service not how he chooses to invest!

However, it should be noted that, even so, Trian’s total shareholder returns from 2012 through 2014, even using the cumulative returns he prefers, were 54% vs the S&P 500 at 74.6%.  All this data is from public third party sources. One of Trian’s main arguments in the DuPont fight is that its Board needs Trian to drive better returns, but the realities of the data show that that the record doesn’t support his position.

3)  The unaddressed history is:  What happened in Mr. Peltz’ prior chemical industry board experience about which he is so proud?  What is the story with joining the Chemtura board for several years and then quitting a week before they file for bankruptcy?

4)  The major lesson is:  You generally do better investing in the S&P 500 index funds, or better yet in the companies activists target, than to invest in the activists’ hedge funds.

5)   Some activists can dish it out but they can’t take the same scrutiny they put on others.

Note: Professor Sonnenfeld has also emphasized that he is “not a paid advisor to DuPont or its CEO Ellen Kullman and that [his] Yale programs receive no support from Kullman or DuPont.”


Source: CNBC, April 2, 2015 article and video




Peltz vs Sonnenfeld over activist fund performance

Matthew J. Belvedere | @Matt_Belvedere

Thursday, 2 Apr 2015 | 4:06 PM ET

Activists push back

Thursday, 2 Apr 2015 | 7:21 AM ET 

CNBC's Scott Wapner reads a statement from Nelson Peltz and Trian Partners, defending their performance. And Jeff Sonnenfeld, Yale School of Management, defends his critical comments.

Management expert Jeffrey Sonnenfeld is going after activists investors—saying Thursday ordinary investors would do better putting their money into the stocks of the target companies than the investment firms on the attack.

Activists "should be held to the same accountability that their target firms are under," the Yale School of Management senior associate dean told CNBC—echoing a position he took in a Wall Street Journal op-ed.

In a "Squawk Box" interview, Sonnenfeld singled out Nelson Peltz's Trian Fund: "Last year ... Trian came in at 8.8 percent return. The S&P was 13.7 percent."

"That's just the facts," he said.

Trian defended itself in a statement to CNBC:

"Mr. Sonnenfeld has twisted and cherry-picked the data to present a highly misleading and inaccurate picture of Trian's performance. The fact is that Trian has delivered excellent results for our investors, which is why we have $12 billion in AUM [assets under management]. Our flagship fund has generated a 137 percent return net of fees since inception in November 2005, outpacing the S&P 500 by 2,900 bps [basis points]. And if you look at our core positions from the day we invested until today, we have outperformed the S&P 500 by an average of 764 bps annually. That outperformance increases to 879 bps for companies on which Nelson Peltz served on the board."

Sonnenfeld responded to Trian's statement, insisting that Trian is "underperforming their own target companies" such as DuPont, the chemcial company locked in a proxy war with Peltz.

"If you put $100 in DuPont when Ellen Kullman became CEO [in 2009], that would be worth $240 today," according to Sonnenfeld's calculations.

"If you put it into the S&P 500, it would be about $200," he continued. "If you put it into Trian, it would be worth $190."

Trian has proposed adding Peltz and another nominee to DuPont's board as well as two other nominees to the board of a unit DuPont plans to spin off.

DuPont is planning to spin off its performance chemicals business, but Peltz wants the company to separate its nutrition and health, agriculture and industrial biosciences divisions from its volatile but cash flow-strong materials businesses.

DuPont has rejected the proposal, stressing that keeping its businesses together would allow the company to benefit from its science platform, global scale, market access and brand.

In a CNBC interview in March, Peltz said breaking up the company would be "the most efficient way" to get rid of $2 billion to $4 billion in costs.

The company's shares have risen nearly 9 percent since Trian went public with its break-up proposal in September.

"This is a huge sea change. If we were having this discussion ... 25 years ago we have many of the same people [like Peltz]. They were called sharks, raiders ... at that time," Sonnenfeld argued.



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