American voters’ embrace of Donald Trump last fall — that rejection of business as usual — echoed an upheaval in corporate America the year before, when professional investors holding DuPont and Dow Chemical Co. stock embraced the radical prescriptions of such billionaire corporate raiders as Nelson Peltz and Daniel Loeb to cure what they saw as failed promises and under-performance by entrenched, high-paid company bosses.
Though the activists controlled just a small percentage of the companies’ shares, they won support from other fund managers with calls for cutting costs, breaking up business groups, and extracting cash. The companies’ boards adopted their broad agenda.
That’s why on Aug. 31, the 215-year-old DuPont Co. — which brought us General Motors and modern explosives, fabrics and corporate finance, plastics and other useful and dangerous-to-make products — will combine with the larger Dow into a corporate cluster, Dow DuPont (stock symbol DWDP). Its job will be to follow initial deep cuts with billions more, then break up by 2019 into at least three new companies designed to send shareholders cash faster and get products to market more efficiently.
The deal marks the failure by DuPont’s last few CEOs to follow expansive science, management, and M&A spending with prompt profit and share-price growth. The insurgents approved Edward Breen, who had broken up Tyco International, to replace homegrown CEO Ellen Kullman, who had secretly been negotiating a Dow deal while publicly defending her record.
Breen promptly signaled a deal was close by canceling Kullman’s billion-dollar IT update. He announced the Dow merge-and-split, and quickly began consolidating staff jobs and gutting corporate offices in Wilmington. Most DuPont Central Research scientists were laid off or transferred to business units. They recycled their chemicals, shut their labs, and collected severance.
Admirers of the old DuPont howled. “Apparently, your job is just to make the stock go up, to make the top 1 percent of the top 1 percent richer [by] taking all the infrastructure,” Bob George, a retired DuPont sales executive, wrote in a letter to Breen. “People have gone to jail for a lot less.”
“Financial terrorism [for] greed, and short-term profits,” Carnegie Mellon engineering professor Ignacio Grossmann called it.
But as investors saw it, Breen and his Dow counterpart, Andrew Liveris, had broken the management logjams. Share prices for both companies have hit record highs since the plan was announced.
What now? With investors such as Loeb calling for further spin-offs, independent directors on both boards have been working with McKinsey & Co. on a review. And Breen has put his team to work reviewing factories and suppliers, in hopes of cutting an additional $3 billion — more than 10 percent of DuPont’s yearly spending.
As of last week, the official blueprint remained the same from 2015: Breen and Liveris would combine the companies’ pesticide and genetically modified seed businesses into one big farm-sales company, based mostly in the Midwest but run from Wilmington, with DuPont agriculture chief Jim Collins as chief operating officer.
The European Union — worried that too many pesticide mergers would squeeze farmers with higher prices and fewer less toxic bug, weed, and fungus killers — pushed DuPont to swap part of its pesticide business with Philadelphia’s FMC Corp. in exchange for FMC’s food-additives business. Staff say FMC has promised to keep them all employed, which was doubtful under DuPont.
The rest of Dow, plus certain similar DuPont product lines, will be split into a Dow successor company based at Dow headquarters in Midland, Mich., with Dow executive Jim Fitterling as chief operating officer. DuPont’s food-additives, safety-materials, and electronics businesses, plus Dow’s electronics, will be broken off as a DuPont successor company based in Delaware, with Marc Doyle as COO. Breen will be chief executive of the combined companies; Liveris will be executive chairman.
Loeb and some of the Wall Streeters covering DuPont want the split to go even further — separating the former Dow Corning silicon business into a separate company and turning the DuPont businesses, which have relatively little in common, into separate firms.
Will the parts, in some ways, be less than the old whole? At DuPont’s last annual meeting, earlier this year, union reps appealed to Breen to leave enough people at the plants to get work done safely. Residents of areas near aging and blighted former DuPont plants in such places as South Jersey (including those now owned by an earlier DuPont spin-off, Chemours) worry about the poisons left behind.
“Who will step up to take responsibility for past contamination that will have serious consequences?” asks Jeff Dugas, spokesman for Keep Your Promises DuPont, a pressure group urging the company to settle health claims for people exposed to cancer-causing chemicals in past and current production of its popular Teflon non-stick coating.
DuPont has left current and future retirees worried about long-term pension and medical benefits, says Lawrence Craig Skaggs, a retired DuPont lobbyist who has signed up more than 7,000 DuPonters to his Facebook site for the company’s pensioners. He sees the fact that DuPont and Dow are still reviewing facility plans with consultants as a sign they are not yet “confident” of their business plans.
Given that highly paid bosses have had such trouble planning DuPont’s own course, Skaggs asks: How will smaller successors be able to keep up with its commitments?