Will Activist Nelson Peltz’s Latest Win Against DuPont Change Hedge Fund Sentiment Towards the Stock?

Nelson Peltz of Trian Partners may have just won another battle in its ongoing war with E I Du Pont De Nemours And Co (NYSE:DD). After the markets closed on Monday, DuPont announced that Ellen Kullman will be stepping down as chairwoman and Chief Executive Officer on October 16. Kullman battled Peltz all the way to a shareholder vote in spring as the activist investor was seeking multiple board seats and a breakup of DuPont. Surprisingly, our data show that the hedge fund industry was not bullish on DuPont as Peltz was struggling to push for changes meant to increase shareholder value.

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According to E I Du Pont De Nemours And Co (NYSE:DD), Kullman, who is now 59 years old and has led the company for seven years, will be leaving the company on October 16 with board member Edward Breen replacing her as interim CEO. Shares of DuPont reached $54.42 in after-market trading after the announcement before settling at $54.29 per share or 5.87% above its closing price on Monday. Year-to-date, the stock has declined by over 31% and over the last 12 months, the slump is at more than 27%.

It should be noted, however, that Fortune reported Kullman was not forced into stepping down. Citing an unnamed source, the publication said that the top executive’s decision to leave was her own. It added, however, that when Kullman approached the DuPont board about retiring, there was a “mutual agreement that […] it was time for Kullman and DuPont to part ways.” There was no ultimatum from Nelson Peltz, the source said, though Kullman’s battle with the activist investor “clearly left her bruised.” Kullman is one of the few executives to have fought activist investors, who have had more success in getting concessions from companies than in publicly fighting them. Peltz, meanwhile, may have said that he does not want another proxy battle with DuPont, but he does not like losing money either, pointing to continued pressure on the company to act on his proposals.

Nelson Peltz’s primary argument against Kullman and her management of DuPont was that the company continually missed financial performance targets. Trian also argued that DuPont still had a lot of costs that can be cut. By breaking up into smaller firms, the companies would have more management focus on the areas they specialize in, argued the activist investor. It looks as though DuPont is still missing its performance targets, as it also revealed in the announcement of its CEO’s retirement that it now expects operating earnings for the full year to be about $2.75 per share, below the prior guidance of $3.10 a share. Second half operating earnings per share is now expected to be about $0.40, down from the previous guidance of $0.75. The lowered guidance is because of foreign exchange headwinds and weaker agricultural markets, particularly in Brazil, the firm said.

Hedge funds were not bullish on E I Du Pont De Nemours And Co (NYSE:DD) in the second quarter, as they ended the period owning just 4.10% of all the company’s shares. This brings their total investment in the firm at approximately $2.4 billion. The sentiment may be turning, however, as hedge funds increased their stake in the 213-year-old company by almost 10% during the quarter, despite a 10.52% decline of the stock. A total of 46 hedge funds were long DuPont at the end of June, up by 10 compared to March 31. Trian Partners held the largest stake among the investors we track at the end of the second quarter with a holding comprised of 24.56 million shares. Adage Capital Management, led by Phill Gross and Robert Atchinson, owned 1.4 million shares, up by 2% on the quarter. D.E. Shaw & Co., L.P., founded by David E. Shaw, upped its stake by 472% to end June with 1.03 million shares.

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