NEW YORK (The Deal) -- Activist Nelson Peltz has called on E. I. du Pont de Nemours and Co. (DD) to split into two separate entities, saying the steps the chemicals firm has taken to increase shareholder value have not gone far enough.
Peltz, who via his Trian Fund Management owns a $1.6 billion stake in DuPont, in a letter to the Wilmington, Del.-based company's board said DuPont should split off its high-growth units, including its agriculture arm, from its slower-growth strong cash flow operations.
The investor first disclosed a stake in DuPont last year, and the company has taken a number of steps in recent quarters designed to boost value. DuPont is in the process of divesting its performance chemical business and authorized a $5 billion share repurchase, and is seeking out other ways to shed costs and streamline operations.
Peltz in his letter to the board said that "while we applaud" the announced moves, "we believe strongly that, by themselves, these moves are not enough to optimize shareholder value." He said that though he would have preferred to work privately with management, "it is now clear that the board is not willing to hold management accountable for continuing underperformance and repeated failures to deliver promised revenue and earnings targets."
The investor called DuPont's current plan, which would not include a split, "flawed," and argued that his split could double the value of company shares over the next three years. He hinted at a potential proxy fight at DuPont, saying Trian plans to meet with shareholders who "will decide the right path forward for DuPont."
Trian flagged what it believes are excessive remaining costs, including $1 billion of publicly disclosed unallocated expenses that it believes includes maintenance of a country club, a 1,252-seat theatre and a 217-room hotel. The firm also said it believes the corporate structure is "overwhelmingly complex" and worries "bureaucracy and a lack of accountability" have hurt growth.
Peltz in his letter noted that when DuPont sold its performance coating business to Carlyle Group (CG) in 2012, the unit generated $339 million in Ebitda. Now that business, called Axalta, is going public with $568 million in Ebitda, a sign the investor said that under DuPont the unit was burdened with excess corporate costs.
DuPont in a statement said that its board "welcomes open communications with shareholders," but said the company remains "committed to executing on our strategic plan to drive growth and profitability." The company said that it has delivered 220% total shareholder return since year-end 2008, compared to 144% for the S&P 500 during the same period.
The company like many of its chemicals rivals has been an active buyer and seller in recent years, by Peltz's estimate buying about $12 billion in sales and shedding about $40 billion in revenue since 1998. Dow Chemical (DOW) , itself under pressure from Dan Loeb to revamp its business, in March upped its divestiture target by $2 billion to $6 billion and said it could seek to sell its massive agriculture unit.