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Battle lost, war won? Activist lessons from DuPont vote

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"Trian actually won," despite billionaire investor Nelson Peltz's failure to place himself or three allies backed by his Trian Fund Management on DuPont Co.'s board in contested elections last week, insurgent-shareholder adviser Michael R. Levin writes on his site, The Activist Investor.

His point: Trian's two-year-old DuPont stake (nearly three percent of the company) is up 15%, even after traders dumped shares following Peltz's defeat. -- Of course, Peltz says DuPont should be worth a lot more -- $125/share by 2017, from today's $70. -- More substantially: bond and credit analysts note DuPont has speeded up cost and job cuts and agreed to pay $4 billion from the pending Chemtura spin-off to shareholders (instead of paying down debt) under Trian pressure. Peltz "already won," Gimme Credit's Carol Levenson said last winter.

"I thought for sure Peltz would win at least one seat," Phila.-based activist adviser Damien J. Park told me. What made DuPont different? Levin collated advice to activists and other would-be corporate insurgents, based on the DuPont vote, news accounts, conventional wisdom:
- Tell a simple story. "The endless SEC filings, letters, white papers, presentations and news releases only led shareholders deeper into the weeds" and made even sophisticated institutional investors "more skeptical" while confusing small shareholders. DuPont beat the S&P 500; Peltz had a tough job arguing he could do a lot better.
- Cut a deal: "Trian could have accepted a couple of board positions," but Peltz insisted one had to be his. Any seats would be better than no seats or the voting-day 6% decline in DuPont share values.
- "Avoid situations with large individual investor holdings." DuPont says retirees, du Pont family members and other individuals own more than 30% of DuPont Co. shares. Individual shareholders tend to identify with management, which has the inside track in reaching them.
- Avoid companies held by the very largest insitutional investors, which also tend to back management. As I noted last Sunday, the two largest U.S. (and DuPont) stock investors, BlackRock and Vanguard Group, both hold trillions in indexed accounts that don't much care who's on a company board as long as S&P likes it (despite claims like this.) And they tend to back management. CalPERS, the largest state pension investor, declared for DuPont, too.
- Don't expect shareholder advisers like Institutional Shareholder Service, Glass Lewis or Egan-Jones will win your war for you. Despite their reputation, Park notes, while active and hedge investors may have backed Peltz, indexed and small investors seem to have largely ignored shareholder advisers.
- It's good to be big: DuPont could afford more lawyers, ads and mailings.