Forecasting Nelson Peltz's next move
Nelson Peltz, the larger-than-life activist investor who took on the DuPont Co., doesn't like to lose, say those who have tangled with him.
Consider what happened at his Bedford, New York, estate in the late 1990s. After buying "High Winds," a 1937 stone castle, Peltz began landing a helicopter on his lawn to whisk him to his Park Avenue office.
The wealthy town, whose residents include Michael Douglas, Martha Stewart and Carl Icahn, didn't take kindly to the chopper rhythms. The town filed a lawsuit. Peltz lost, after a five-year battle.
"He's not used to losing," said town lawyer Joel Sachs. "He wants to get his way whether in business or his personal life. He's persistent."
If Bedford's showdown with Peltz is any indication, Peltz and his Trian Fund Management could take another run at DuPont for representation on the board after shareholders defeated his bid for four board seats last week. Some analysts and observers don't see Peltz going away anytime soon after the historic proxy contest. DuPont, with a $67 billion market value, is one of the largest companies ever targeted by an activist.
"He's tenacious," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "He's got a large holding at DuPont – it's hard to unwind that."
What's more, Peltz captured a large percentage of the shareholder vote in the proxy contest, which shows many investors believe Peltz has a role to play, Elson and other said.
Other observers are less sure. Damien J. Park, managing partner of Hedge Fund Solutions, a consulting firm focused on activist shareholders, said it is possible Peltz will move on from DuPont.
"You don't spend $8 million in a fight, lose and put your chips in again," Park said. "He needs to look into who voted against him and why they voted against him. If it's overwhelming in certain areas, then he may walk away."
Neither Peltz nor anyone at Trian would comment for this story.
No matter what Peltz's next move may be, he's not the one-dimensional corporate raider that a proxy contest or legal battle would suggest, many say. When Sachs deposed Peltz in the helicopter case, he found Peltz to have a winning personality.
"I had never met Nelson. I thought he'd be a real ogre. He's actually pretty charming," Sachs said.
People who have worked with him have been very complimentary about his operational acumen, calling him an astute businessman, Elson said.
"My experience working with Nelson was quite positive…" Dennis R. Beresford, who served with Peltz on Legg Mason's board and is now executive in residence at the Terry College of Business at the University of Georgia, said in an e-mail.
Lawrence Cunningham, a professor in corporate governance and investing at George Washington University, who has written a book with a chapter dedicated to activist investors, said Peltz is well-respected by board members.
"I think Peltz developed a bad boy reputation, but among the number of board members he worked with, he's got a very good reputation," Cunningham said. "He is said to be constructive and have good ideas."
Going forward
Bill George, former chief executive of Medtronic and a director of Exxon Mobil and Goldman Sachs, said he's skeptical that Peltz will stick with DuPont long-term now that he's lost the proxy battle.
"Losing is not something Peltz is used to," Cunningham said. "That kind of regrouping is new and he will have to navigate how to handle it."
But Cunningham said traditionally Trian holds its assets longer than most activist investors. On average, an activist investor holds its stake in a company for 20 months, but Trian maintained its position in H.J. Heinz Co. for roughly seven years and held its Legg Mason Inc. shares for five years, Cunningham said.
Cunningham believes it's unlikely that Peltz immediately divests his stake in DuPont.
"Peltz has not indicated any propensity to give up," he said. "I think he will dig in and be prepared to continue the pressure. The shareholder vote was a huge victory for DuPont, but it was not a landslide."
Consultant Park said if Peltz does make another bid for board seats at DuPont, it will not be for at least a year. In the meantime, Park believes Peltz will continue to engage DuPont Chief Executive Officer Ellen Kullman and DuPont board members.
During a brief dialogue with reporters after the shareholders meeting Wednesday, Peltz accused the media of inaccurately portraying his claim that DuPont should be split into two companies. Peltz said he thought separating the company was a "worthwhile conversation," but felt the media represented him as emphatic about the idea. A claim he said was done for headlines.
"I think we paint the activist investors with the same brush," said Lawrence Hamermesh, professor of corporate and business law at Widener Delaware Law School. "To some extent he deserved a little bit of the paint. But by the time the campaign was over, I think he became less dogmatic about splitting the company, which was a more mature position."
Cunningham said "Peltz is not as much of a conglomerate buster" as his Bedford neighbor, Carl Ichan.
"He is more focused on how a company can be operated more effectively than split," Cunningham said.
Deep business background
Operating businesses has been a way of life for Peltz, something that can get lost amid the hyperbole of a proxy fight, experts said.
In some ways, Peltz's early background is surprisingly similar to Kullman's. Both grew up with family businesses.
Peltz's grandfather, Adolf, founded a family food business in 1896 when he began selling pre-sliced apples door to door, according to a 1988 article by The New York Times. Eventually, A. Peltz & Sons supplied produce and frozen foods to hospitals, restaurants and bakeries in New York City.
Peltz, who attended The Wharton School at the University of Pennsylvania, joined the family business in 1962 to save money. He had wanted to move to Mount Hood, Oregon, where he would teach skiing. But by 1967 he was helping his father acquire food-distribution businesses.
He met his business partner, Peter May, a certified public accountant with an MBA from the University of Chicago School of Business, in 1972 when they were working together in the regional food business, according to Trian's website. Six years later, Peltz and May sold the regional food business.
Their next venture was the creation of NPM Group, an operations turnaround company, the Trian website says.
Peltz and May gained control of Triangle Industries, a maker of coin-operated video games, vending machines and jukeboxes, in 1983 and used it as a base "to build a major industrial company," according to the Trian website.
They made headlines in 1985 when Triangle took over National Can Corp. in what was then one of the first acquisitions financed by high-yield, or junk, bonds. Triangle then bought American Can Corp.'s packaging system in 1986. In December 1988, Triangle was sold to Pechiney, S.A.
Next, Peltz and May purchased an interest in 1993 in DWG Corp., which was renamed Triarc Companies, a conglomerate.
In 1997, Triarc acquired the Snapple brand from Quaker Oats and "engineered a marketing and operational turnaround," according to Trian's website. The turnaround is now a Harvard Business School case study.
Triarc sold the beverage businesses to Cadbury Schweppes in 2000.
Edward Garden, who is Peltz's son-in-law and had been a managing director of Credit Suisse First Boston, joined Triarc, according to the Trian's website.
Trian is created
Trian, a hedge fund, was created in 2005 by Peltz, May and Garden.
Since its formation, Trian has purchased stakes in multiple companies including Heinz, Cadbury Ltd., Legg Mason Inc., Family Dollar Stores Inc., Wendy's Co. and PepsiCo Inc.
After starting Trian, Peltz acquired a 5.4-percent stake in Heinz in 2006 and immediately launched a proxy war. Peltz sought to land five candidates on the Heinz board, and succeeded in landing two. Peltz pushed for cost-saving ideas that resulted in Heinz shuttering 15 factories and cutting $355 million. The leaner Heinz attracted a venture between Berkshire Hathaway and 3G Capital, which paid $28 billion, or $72.28 per share, creating a 20 percent return for shareholders.
In 2007, Trian acquired a sizable stake in the chemical company Chemtura. It had been struggling mightily before the Trian transaction, generating only one profitable year since 2002, and it was encumbered with a huge amount of debt. Garden joined the board in 2007, but resigned in 2009. The company declared bankruptcy shorty after Garden's resignation. Trian said the bankruptcy was the result of tightening credit markets during the financial crisis limiting its ability to refinance Chemtura's debt.
Other acquisitions include a stake in Family Dollar and Legg Mason. At Family Dollar, the hedge fund advocated remodeling stores and adding groceries and other products to attract Wal-Mart shoppers. Family Dollar shuttered 370 under-performing stores and cut an undisclosed number of jobs in 2014. In January, rival Dollar Tree agreed to acquire the company in an $8.7 billion transaction. Trian reduced its stake after the merger was announced.
Peltz joined Legg Mason's board in October 2009 when the money manager was struggling during the recession. During Peltz's tenure, the company replaced its CEO, increased cash flow and returned $2 billion of capital to shareholders. Peltz resigned from the board in December 2014, but Ed Garden remained. The moves propeled the company's stock from $30 per share when Trian acquired its initial stake to $55 per share when Peltz resigned.
Olive branch recommended
Some predict that if Trian does make another bid for board seats with DuPont, the battle might not be as pitched. During the proxy battle, Reuters reported that Fidelity Investments, a major DuPont shareholder, was pressuring Trian and DuPont to reach a settlement.
Elson agreed that proxy battle bickering tends to muddy a contest.
"I think an olive branch would be appropriate at this time," Elson said. "Companies operate with consensus not with divided camps."
At the annual meeting, Kullman made a point of going into the audience to shake hands and chat briefly with Peltz. Afterward, she said she planned to reach out to all shareholders.
For his part, Peltz said he would continue to monitor DuPont, but declined to discuss future plans. Peltz also declined to comment on whether he would remain vocal about the company's performance.
Hamermesh said Peltz criticizing DuPont so quickly after he lost the proxy vote could sour the already tense relationship he has with the company's board. Hamermesh did note that speaking out once a while might work to build support for another proxy fight, if Peltz wants one.
"He's not going to fire out a press release every time something disturbs him slightly," he said. "But if there is a serious disappointment, it might be a way to remind people he's still there."
Consultant Park agreed.
"I don't expect him to continue a negative publicity campaign going forward. That is not his style," Park said.
After his proxy bid was defeated, Peltz still had some of his characteristic swagger.
"This is not my first loss," Peltz said. "I've had plenty of losses before I left Brooklyn and I'll probably have plenty more."
Contact Maureen Milford at (302) 324-2881 or mmilford@delawareonline.com. Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or jmordock@delawareonline.com.