Will DuPont cut late deal with Peltz? (Update)

(Friday update:) After posting flat sales but rising profit margins in its first-quarter earnings last week, DuPont Co. "will reach an agreement with Mr. Peltz" before the May 13 board meeting, predicts Carol Levenson, analyst at bond research agency Gimme Credit in New York, in a report to clients.

Levenson says DuPont CEO Ellen Kullman's efforts to placate activist investors led by Nelson Peltz and his Trian Fund Management have already resulted in (1) cost-cutting that has boosted DuPont margins to nearly 20 percent, highest (for the first quarter) since 2010; and (2) the company's decision to give $4 billion from the planned spinoff of Chemours (kem-OARS), DuPont's cyclical but highly profitable titanium-dioxide (white pigment) unit, to shareholders instead of using it to pay down debt

 (Thursday:) Shareholders' adviser Glass, Lewis & Co. LLC has endorsed billionaire activist investor Nelson Peltz for a seat on the DuPont Co. board. The move follows support for Peltz by another adviser, Institutional Shareholder Services Inc., on Monday.

Trian seeks to oust four board allies of DuPont CEO Ellen Kullman and accelerate operations reviews, administrative cuts and the possible break-up of the Wilmington-based materials giant, which Peltz says has posted disappointing sales and profits and appears to be too complex to run efficiently. Like ISS, Glass Lewis split its endorsements. Glass Lewis backed Peltz but not other Trian nominees. ISS backed Peltz and his ally ex-GE Capital executive John Myers..

"We are very pleased that the two leading proxy advisory firms, ISS and Glass Lewis, have recognized that change is warranted at DuPont," and that Glass Lewis believes DuPont's board needs "fresh perspectives" to "work constructively with management... to increase accountability in the boardroom," founder Peltz said in a statement.

Trian owns about 2.7% of DuPont shares, worth $1.8 billion, or roughly one-sixth of Trian's total portfolio, which in the past has pushed for asset sales and shareholder payments at other big companies like H.J. Heinz, Pepsico, Kraft, Mondelez, and Chemtura.

DuPont said Glass Lewis reached the "wrong" conclusion and issued a rebuttal that focused on supportive quotes from Glass Lewis' statement: "DuPont's total shareholder returns during management's tenure, both before and after Trian's investment, are indicative of strong performance... We generally find DuPont's strategic vision to be compelling... With Ms. Kullman at the helm, DuPont's business portfolio has been shifted toward the higher growth and margin opportunities... We see among the current directors a wealth of both operational and board experience at major public companies, most with strong records of delivering returns for shareholders," and half new since 2011.

But Glass Lewis still told investors to back Peltz. Glass Lewis is also backing Kullman and the 7 of the other 11 DuPont incumbent directors who like Kullman are running unopposed, but is neutral on whether to back Kullman- or Peltz-supporters (such as Kullman ally lead director Alexander Cutler or Peltz-backed Myers) for the other 3 contested seats.

In a statement, Trian called Peltz "uniquely qualified" due to his firm's $1.8 billion stake in DuPont and suggested he is more likely to act like an owner than current directors, who include Eleuthere du Pont, a descendant of the founding family, as well as active and senior excecutives from a number of large U.S. companies..

Putting Peltz on the board "may help restore any credibility lost in the eyes of investors following the CEO's recent stock sales," Glass Lewis added. DuPont has defended Kullman's cashing in on DuPont's rising share values as her company-awarded stock options came due, noting she still holds several times more shares than the company requires of a manager.

Trian has "legitimate concerns at DuPont, primarily related to operational execution and management accountability," and correctly argues that DuPont "is not performing to its full potential," as shown by "management's inability in recent years to meet its own long-term growth targets or its initial earnings guidance in any of the last three years," Glass Lewis added. "Giving Mr. Peltz a seat at the board table would help to ensure that DuPont continues to implement the types of value-creating initiatives it has during the two years since Trian invested...

"Shareholders should be concerned regarding management's multi-year pattern of overpromising and underdelivering when it comes to bottom-line profit, as well as the continued inability of management to achieve its long-term EPS growth target. This gives credibility, in our view, to Trian's larger concern that DuPont continues to struggle with excess costs and operational inefficiencies, as well as slower growth and lower margins than management has anticipated, ultimately resulting in lower EPS."