Nelson Peltz may have been bruised by his fight earlier this year to win control of DuPont. But the legendary activist investor used his appearance at today’s Delivering Alpha conference, co-hosted by Institutional Investor and CNBC, to signal he won’t be backing down from his commitment to the chemicals giant.
Peltz and his co-founders at Trian Partners came close to winning a bruising proxy fight in March to win seats on the DuPont board, garnering 46 percent of the vote. Active fund managers, on the whole, supported Peltz; three major index funds, Vanguard Group, State Street Global Advisors, and BlackRock, voted against him. “It’s been a significant loss for shareholders,” said Peltz, appearing alongside Pershing Square Capital Management’s Bill Ackman in the opening panel at Delivering Alpha. “The stock has gone from $80 in March to $59. Think what might have happened had we won.”
Peltz and Trian had outlined an ambitious plan of cost-cutting and restructuring for DuPont, whose stock price and earnings have been sluggish under chairman and CEO Ellen Kullman. Peltz may have lost the proxy battle, but Trian has held onto its $1.5 billion stake and the issue of board membership may be revisited if the company continues to underperform.
“We’d rather be rich than right — if the stock goes to 100 in the next year, then great,” said Peltz. “But if it doesn’t, we have to look at other options. The second least favorite thing I’d like to do is have another proxy fight. The first least favorite thing I’d like to do is see DuPont’s share price at this level in one year.”
Peltz, who got his start as an investor in the wake of the 1980s rise of the junk-bond-financed corporate raiders, has long touted his credentials as a “constructive” activist.
At Delivering Alpha he took the opportunity, once more, to issue a slightly mournful plea for a better understanding of what he sees as an unfairly maligned class of investors. “What really troubles me is activists are all seen as greenmailers, as the raiders of the 80s; it’s not true,” he said, pointing to his now ten-year position in Wendy’s and a successful turnaround strategy for Heinz as proof of the sincerity of his commitment to the long-term growth of promising companies. Trian waged a long proxy battle over Heinz after disclosing a 5 percent stake in the company in 2006; after initial resistance, management eventually executed Peltz’s stern recipe to reboot the company — the customary mix of cost-cutting and asset sales. Heinz prospered, eventually being taken private by Berkshire Hathaway after a $23 billion acquisition in 2013. “Like most management the kneejerk reaction was to keep the activists out,” said Peltz of his experience with Heinz. “But we had a plan. And it worked.”
Unsurprisingly, Ackman — perhaps the most maligned activist of them all — agreed with much of what Peltz put forward. “It’s very useful for a CEO to have a shareholder on the board,” he said. The word “conviction” is probably the most abused term in investing. But Ackman, whose work as an activist extends to high-stakes, publicity-seeking shorts in companies such as Herbalife, is nothing if not a man of conviction. The point of what he and Peltz do, he said, is to buck fashions and have the courage of their own opinions. The technology sector has exploded over the last two years, with venture capital funding approaching the levels of the dot-com boom and start-ups reaching $1 billion valuations in numbers never seen before. Peltz and Ackman, perhaps predictably, remain unmoved by the hysteria. “We like businesses that have moats around them; technology doesn’t fit that,” said Peltz. Ackman added that activists in the Pershing-Trian mould like steady, stable growth-stage companies. “Technology is just too dynamic.” This is not to say activists are risk-averse: Ackman earlier this year announced a stake in Fannie Mae and Freddie Mac, long seen as investments subject to high legal risk. “It’s our most interesting investment right now, even though it’s in the sex and violence part of our portfolio,” he said.
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