On Tuesday, the high stakes battle over the future of DuPont was fought with a nice lunch and a goodie bag.
Nelson Peltz, the former corporate raider turned activist investor, hosted a lunch for the chemical giant’s largest shareholders and Wall Street analysts. Peltz’s Trian Fund Management, which owns 2.7% of DuPont (DD), has launched a proxy fight to replace four of DuPont’s directors with his own nominees. His original self-proclaimed goal is no less than to break-up DuPont into smaller businesses, though he has backed off that demand somewhat. Of course, Peltz wants to make some money along the way.
At the lunch, Peltz once again presented his case for why DuPont’s current management hasn’t delivered, and why the company is in need of a change. But if Peltz had one message for shareholders it was this: DuPont could be great again, which has become his tagline in the proxy battle, but only if he is on the board.
“This company was once the most valuable company on earth,” Peltz said. “We are going to get the company to grow again.”
The lunch was held at the swanky St. Regis Hotel on Fifth Ave. in Midtown Manhattan. About 120 analysts and investors filled a top floor banquet room of the hotel. Peltz led the presentation along with fellow Trian partner Ed Garden, and the three others Trian has nominated for DuPont’s board of directors, Bob Zatta, Art Winkleblack and John Myers. Breaded chicken paillard with a balsamic glaze was served, along with carrot cake for dessert. Attendees got a gift bag when they left filled with chocolate bars and a Trian mug. Under the Trian logo on the mug it said, “Cash is King,” a sort of motto for activist investors. Peltz and his allies only discussed DuPont during the lunch, the sole major lunch presentation they will hold before the proxy vote on May 13.
During the presentation, Garden railed that five out of DuPont’s seven main businesses have underperformed. Revenue at most of the company’s businesses is either falling or flat, he complained. Garden did single out the company’s Pioneer business, which sells seeds for farming, as having performed relatively well. Garden quipped the reason was likely because it was located far away from Delaware, which is where DuPont’s corporate headquarters. But overall, he hammered home the point that the company’s earnings have been basically flat for several years — although DuPont refutes those numbers.
Peltz answered critics by saying he wasn’t against spending on research and development. But he insisted that much of what DuPont has spent on R&D hadn’t produced results. Peltz also pointed to the Carlyle Group operating DuPont’s coatings business, which the chemical company sold to the private equity firm in 2012, more cheaply than DuPont did as evidence of the chemical company’s poor cost management. Private equity companies, though, routinely say part of their advantage is that it is almost always cheaper to run a company outside of the public market.
Zatta, the Trian board nominee who used to run the chemical and industrial company Rockwood Holdings, told the crowd that DuPont suffered from a “bloated cost structure” and criticized its strategy of pooling its scientific personnel into a central all-purpose lab. Zatta said he resisted that structure at Rockwood under the theory that the farther you move the science away from the end user, the worse it is. DuPont does have a central R&D lab, but the company has said that less than 10% of its research budget is spent there.
Myers, who used to run GE’s asset management division, criticized the fact that a number of DuPont’s directors, including the board’s lead director, are also currently CEOs of other companies. He questioned whether they were able to devote the amount of time needed to DuPont. Winkleblack, who is the former CFO of Heinz, said his company fought Trian as well (Heinz and DuPont had their own proxy fight a few years ago) but ultimately found Peltz easy to work with after his company lost. “Proxy fights are about egos, and egos are playing a role today,” said Winkleblack.
But while all of Trian’s proposed board members made brief statements drawn from their own professional histories, much of what they had to say Tuesday merely repeated points that Trian has used before in its attacks on DuPont’s management. At one point in the presentation, Peltz thanked Myers, who had just finished praising Peltz, for reading the statement just as Peltz had written it. The comment was a joke, and it got a laugh, but it rang true. Much of what Zatta, Myers and Winkleblack said seemed like it had been feed to them word-for-word by Trian.
Despite the delivery, the lunch attendees appeared to be on Trian’s side. All of the fund managers who Fortune approached at the meeting said they were either likely to vote with Trian or were leaning that way. Henry Smith, chief investment officer at Haverford, said he didn’t see the harm in giving Trian some board representation. Based on the size of Trian’s investment in DuPont, he said it seemed to make sense they should get at least one board seat. A representative from Trian said the fund hadn’t invited people to the lunch based on how it thought they were likely to vote in the proxy fight.
Even in the question and answer session, Peltz received little push back from the crowd. The one mildly contentious question Peltz got was about James Gallogly and Edward Breen, two recent appointees to DuPont’s board. A person asked why Peltz wasn’t happy with those nominees, given the fact that news reports have suggested that Trian courted them as well.
Peltz responded that he had never talked to Breen and that he had only talked briefly to Gallogly. But Peltz said Gallogly was only interested in extracting a promise that he could be DuPont’s CEO if Trian won the proxy contest. Peltz said he wouldn’t agree to that.
In a statement after the Tuesday’s lunch meeting, Gallogly, who has defended the job DuPont’s Ellen Kullman has done as CEO, denies ever seeking DuPont’s top job or wanting to replace Kullman. “[Peltz’s] claim is simply untrue,” Gallogly said through a spokesperson. “I have chosen to work with Ellen Kullman and the rest of the DuPont board to build value for shareholders, and I am looking forward to a long and productive relationship.”
One DuPont advisor, who was not at the event but had reviewed Trian’s presentation materials, said there was nothing new in what Trian presented at Tuesday’s lunch. DuPont has already refuted all of the points in the past, he said. On Tuesday morning, DuPont reported earnings that were better than Wall Street expectations. Nonetheless, the company’s sales and revenue were down, and its shares slid nearly 3% on Tuesday to just over $70, indicating that investors were disappointed by the results. DuPont blamed a good portion of the drop on the fact that the strong dollar is hurting DuPont’s sales overseas, where the company gets 60% of its revenue. The weak global economy is also surely hurting the company.
On the call with analysts, CEO Kullman defended DuPont’s performance. She said earnings at DuPont’s core businesses have been up 19% a year since 2008, and that the company has had success leveraging its scientific research into new products. She said she has positioned the company not just for success now, but for the long-term. “We are energized by the progress we have made, but are even more excited by the opportunities the future holds,” said Kullman.
Kullman added that 2015 should be an exciting year for the company. The next month shouldn’t lack drama either.
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