The last year has seen an increase in shareholder activism in the chemicals and materials sector with varying degrees of success. In late 2014, the board of chemicals giant Dow Chemical negotiated a settlement with hedge fund manager Daniel Loeb of Third Point Management after Loeb threatened a proxy war. The settlement led to, among other things, two independent Third Point nominees joining the company’s board. Agruim was also targeted last year by two different activist investors, the first leading to a 10-month proxy fight in which Agrium was ultimately successful.
Most recently, the board of E.I. DuPont de Nemours, a leading U.S. chemicals and materials conglomerate, was targeted by activist investor Nelson Peltz of Trian Management. In mid-May, Trian challenged Dupont’s board and, after settlement negotiations failed, the hedge fund began an aggressive proxy campaign against the company. Trian nominated four directors to the board and criticized Dupont’s current management for alleged inefficiencies which held DuPont back from its growth potential. DuPont vehemently defended the company’s productivity and growth-focused initiatives and investment management. It also, among other things, added two new well-regarded directors to its board. DuPont reportedly spent $15 million on its shareholder campaign.
Although Trian was one of DuPont’s largest shareholders, with almost $2 billion worth of shares in the company, it owned less than 3% of DuPont’s outstanding shares and therefore needed the support of DuPont’s other shareholders to make its campaign a success. Despite the fact that the major proxy advisory services supported Trian, on May 13, 2015, DuPont emerged the victor. On a relatively close vote, DuPont’s shareholders backed all 12 of the directors nominated by DuPont.
We commented previously on the Aberdeen proxy battle earlier this year where Aberdeen mounted a successful defence to an aggressive shareholder attack (Lessons from the Aberdeen Proxy Battle). The latest DuPont/Trian proxy battle is another reminder of the importance for boards to develop and implement well-organized strategies when confronting aggressive activism. In the case of DuPont, some successful tactics included reminding shareholders of the company’s various business and strategic initiatives for long-term growth, adding new talent to refresh its board, and engaging in an extensive communications campaign with its various stakeholders.
Boards potentially facing a proxy fight should consider the risks and potential harms unique to their situation and the particular industry in which they do business. While a negotiated settlement may be the best strategy in some cases, in others an effective and well-organized proxy campaign may lead to a more desirable outcome.
Planning allows continuous risk assessment and advanced planning, including ensuring expert advisors are at the ready, can bring significant benefits and enhanced shareholder value.