DuPont shares fall as index funds, small investors reject raider Peltz

(Latest 10:45) DuPont Co. shares are trading down 6% after the company said shareholders defeated an attempt by billionaire activist investor Nelson Peltz and three allies backed by his Trian Fund Management to unseat incumbents and join the board.

"The action in DuPont's share price, post-proxy vote, shows where active money managers voted," which was for Peltz and change at the Dow-Jones Industrials-listed, $35 billion (yearly sales) bio/chemical materials giant, says Peltz backer Michael Crofton, boss at Philadelphia Trust Co., which voted more than 50,000 shares for Peltz.

(Update 9:30ish) All the company's nominees have been reelected, DuPont says. Meeting adjourned. -- Activist investor Nelson Peltz says the vote was "close." He blamed index funds (BlackRock and Vanguard are DuPont's largest shareholders) and many among DuPont's 30%+ individual investors for backing the company's 12 nominees against his four-person insurgent slate; Peltz expects his Trian Fund Management slate did better with active mutual funds and other midsize investors.

In remarks after, Peltz said he had no regrets about the messages he launched in his failed two-year campaign for DuPont board seats. He disputed the suggestion he hurt his cause by backing off earlier calls for breaking DuPont into pieces. Peltz said in future contested campaigns (at DuPont or other companies) he'll work harder to reach index investors and "retail" shareholders.

In brief remarks to shareholders, CEO Ellen Kullman praised "stalwart" DuPont directors, shareholders, managers and employees for backing her programs of measured cost-cutting, biomaterials acquisitions, sales or spin-offs of older chemical businesses, and massive share buybacks to prop up the share price.

With reporters later, Kullman promised a reinvigorated company will do a better job reaching out to investors after it spins off the Chemours chemical business next month. She didn't dispute Peltz's analysis -- that index fund managers (BlackRock, Vanguard) and small investors (many with ties to the company) had outvoted the activist mutual fund and hedge fund managers who backed Peltz's insurgency.

Peltz claimed credit for his activism as the real cause of the company's recent share price gains, and said it is unlikely DuPont will reach its own earnings targets this year, any more than it has the last three years under Kullman. 

Company employees and retirees, many of them Kullman supporters, swelled the crowd at DuPont's normally sleepy annual meeting to more than 400. "The good guys won," Chester County resident Douglas Adolphson, a DuPont retiree who said he worked with Kullman in the 1980s, told me. "She has a strong leadership style," and has boosted retirees' DuPont share values more than her predecessors, Adolphson added. 

"This was worth the trip," said David Reifschneider, a shareholder and former DuPont engineer who also cheered management's victory as a better outcome for Delaware, where he lilves. 

(Earlier about 8:25 a.m.): Before the meeting, activist investor Nelson Peltz and his nephew Ed Garden told me he expects the vote will be close. Addressing investors at CEO Ellen Kullman's invitation, Peltz said his Trian Fund Management has already persuaded the company to spin off its Chemours materials unit, use $4 billion in proceeds to reward investors, cut spending and improve executive compensation. He said he would remain active in pressing DuPont to boost profits even if he and his allies aren't elected. His firm owns nearly 3 percent of DuPont. 

Kullman sat quietly on the dias as Peltz spoke, mostly looking down. Her red dress contrasted with Peltz's charcoal suits, also the uniform of the aides and lawyers he caucused with before the meeting. She wore a white beaded pearly choker and a sunburst brooch; Peltz sported his owlish spectacles and three days' silver stubble above his goatee.

(8 a.m.): DuPont Co. shareholders are streaming into the company's new headquarters at Chestnut Run outside Wilmington this morning for the bio/chemical giant's annual meeting and the counting of ballots in a board election contested by activist investor Nelson Peltz's Trian Fund Management.

Peltz has excited small institutional investors and many individual investors with his relentless critique of DuPont, in which he has attacked CEO Ellen Kullman and her gang for not moving fast enough in cutting costs, reviewing administration and research expenses, tying them to sales, and selling or spinning off unproductive or slow-growing assets; and that board incumbents have failed to push Kullman to do better.

Kullman has shot back with a detailed defense of her five years in charge, citing the company's rising share price -- for which Peltz also claims credit -- and associating Peltz with higher debt, research cuts and mortgaging the company's future.

If Peltz and any of his three allied candidates win, they'll still form a minority on the 12-member board, but the company will feel investor pressure to move faster. I'll update when there's more to say. See also @PhillyJoeD