Why DuPont Beat Nelson Peltz in the Biggest Proxy Fight in Years

NEW YORK (The Deal) -- The pieces seemed to be falling into place for activist Nelson Peltz and his Trian Fund Management late last month after the two main proxy advisory firms recommended that shareholders back his candidacy for the board of E.I. du Pont de Nemours and Co. (DD). Endorsements from the two firms, Institutional Shareholder Services and Glass, Lewis, can sway votes and in a close contest might make the difference between winning and losing.

But not this time. In the highest-profile proxy contest of 2015, Peltz failed to get a seat at the chemical giant for himself or for three other dissident candidates.

The loss reverberated throughout the activist fund world, partly because Peltz is considered by many to be the premier insurgent. His operational background has traditionally set him apart from other insurgent fund managers in the views of institutional investors. At DuPont, though, Peltz apparently failed to obtain the backing of a sufficient number of both institutional investors and the chemical giant's generally promanagement retail investors, who represent roughly 33% of the company.

Activist Investor Nelson Peltz

So what happened? The consensus among a handful of interested observers as well as several people involved in the campaign is that big index funds and other passive investors did their own research and came to the conclusion that DuPont CEO Ellen Kullman was already making the kind of proshareholder moves that activists try when they get on a board. These moves included stock buybacks and a decision to spin off a performance chemical business.

Big investors are more likely to pay attention to high-profile fights at large companies such as DuPont and, consequently, are less likely to follow proxy firm recommendations. Institutions are more likely to follow proxy advice in director-election battles at smaller companies.

"If an institution has 50 companies that have equally contentious situations they will only focus on the biggest ones," said one corporate adviser. "They are triaging."

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