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DuPont CEO Pushes Back Against Call for Split

October 29, 2014
Chemical Value Chain
DuPont Co. Chief Executive Ellen Kullman defended the company’s diverse portfolio of businesses, pushing back against an activist investor’s drive to break the company in two.
 
Ms. Kullman, in her first public comments on the campaign by Trian Fund Management LP, said the chemical company gains unique competitive advantages by developing seeds for farmers, plastics for car makers and a host of other products.
 
“There is a lot of power in being able to deliver greater capability to [customers] than in being very narrow,” Ms. Kullman said in an interview Tuesday. She also commented on Trian’s proposal in a conference call after the company reported earnings.
 
Trian, headed by investor Nelson Peltz , in September called for DuPont to divide into a growth-oriented company focused on agriculture and nutrition and another company focused on industrial materials set up to return cash to shareholders. Trian said its plan could help eliminate $2 billion to $4 billion in excess costs at DuPont and produce more meaningful scientific discoveries at the resulting companies.
 
DuPont outlined its defense in a presentation to shareholders on Tuesday, touting its business portfolio and continued efforts to streamline operations. DuPont executives plan to begin meeting with shareholders Wednesday to discuss the materials.
 
Ms. Kullman, who has led DuPont since January 2009, said “there are points where we and Trian are aligned,” such as trimming costs and managing DuPont’s broad portfolio of businesses, which range from producing materials for high-definition television screens to deicing fluids for airport runways. She said DuPont over the past five years has cut $2 billion in expenses and plans to cut another $1 billion by 2020 while repurchasing more shares than its peers.
 
DuPont plans next year to spin off its performance-chemicals business, which makes house paints and materials for nonstick frying pans. The company expects to file documents detailing the plan to U.S. regulators in December.
 
While Ms. Kullman didn’t rule out further changes to DuPont’s portfolio—adding and cutting businesses—she said breakup plans must be viewed “in the cold, hard daylight to understand how we create value.”
 
“We take a look at what the breakup costs would be, what the ongoing increased costs would be, what the lost capability would be, and understand that opportunity versus [remaining] together,” Ms. Kullman said.
 
DuPont’s current portfolio gives the company advantages in engineering and production capacity and the flexibility to divert more people and resources to tackle a problem or introduce products more quickly, she said.
 
Trian’s proposal significantly underestimates the cost of separating DuPont’s operations and the fund has no basis for the billions of dollars in savings Trian anticipates by splitting DuPont, the company said. The resulting companies also would suffer from lower credit ratings and reduced financial flexibility, DuPont said.
 
Trian declined to comment.
 
Ms. Kullman declined to specify whether DuPont would consider giving Trian, which owns about 3% of DuPont’s shares, a seat on the Wilmington, Del., company’s board. “This is early, from the standpoint of Trian,” she said, and investors generally give DuPont “very high marks for strong governance.”
 
DuPont said third-quarter earnings jumped 52% because of lower expenses, despite a 4% decline in agricultural sales as seed demand slowed.
 
Profit rose to $433 million, or 47 cents a share, from $285 million, or 30 cents a share, a year earlier. Operating earnings, which excluding certain items, increased to 54 cents a share from 45 cents a share.
 
Net sales fell 2.9% to $7.51 billion because of the sale of some businesses.
 
Chief Financial Officer Nick Fanandakis said on the conference call that the sluggish economy in Europe and the strengthening U.S. dollar were likely to weigh on DuPont’s performance in the coming months.
 
By Jacob Bunge and Chelsey Dulaney
 

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