DuPont, Trian and Shareholder Votes

Yesterdays Wall Street Journal had a very interesting article related to Dupont's impending election, noting the importance of small shareholders in the voting process.  The vote will be to elect DuPont's 12 directors.  Trian has nominated an alternative slate containing eight of DuPonts nominees and four of their own, including Trian boss Nelson Peltz.  A decade or so ago, institutions typically sided with management.  Today's institutions appear to take a more nuanced look at the issues and directors upon which they vote.  Still, the typical shareholder is likely to be apathetic with regard to voting, assuming that their small holdings do not count.  

To understand the typical voting distribution, take a look at the chart below from our Journal of Finance paper, Electing Directors.  The typical director gets well over 90% support.

The chart is derived from an analysis of about 2500 director elections (for more detail, see Electing Directors).   However, only four of those were contested.  In the DuPont case, the 12 directors receiving the largest number of votes will be elected.  It will be interesting to see how this one turns out and if Trian is successful, what changes in DuPont's structure and what changes in share value follow.

All the best,

Ralph

Netflix, Proxy Fights and Activists

We posted recently about  Netflix and the poison pill it issued in response to Carl Icahn's acquisition of a 10% stake.  I confess to a fondness for Netflix.  I was able to buy it around $55/share in the fall of 2009 and sold out at $150 and then $260 a share.  Pretty heady stuff for a guy who believes in efficient markets!  So now, Netflix is back to earth, trading around $80 a share and Carl Icahn thinks more value would be created by selling the company.  What are his likely next steps?

More than likely, he will continue to negotiate with management but simultaneously launch a proxy fight to take control of the board.  But we've noted that the board is elected in staggered terms and that it would generally take at least two years to get control of the board.  That is a long time for an activist to wait.

On Monday Jana Partners, LLC launched a proxy contest to shake up the board of Agrium Inc., a Canadian Firm that makes fertilizer and other agricultural products.  Agrium has responded with a number of moves to placate shareholders, including a $900 million (canadian dollar) share buyback and a doubling of its dividend.

The evidence on activists in general is that they increase shareholder wealth - sometimes by forcing companies themselves to do the very things the activists propose.  It is interesting that it sometimes takes outside forces to unlock value that internal forces ignorned.  It is also ironic that while some players are new on the scene (we didn't talk about Hedge funds in the 80's) some are old hands: one of the the first academic studies of shareholder activism was published in 1985 and featured Carl Icahn. 

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In America, we're celebrating Thanksgiving this week, a time for giving thanks and for gathering with friends and family.  Joe and I appreciate your continued comments to us and your interest in our blog.  We'll take Friday and Monday off but look forward to seeing you next week.

Happy Thanksgiving to all,

Ralph