Fending Off Well-Funded Activist Moves: Lessons learned from DuPont, P&G.

• Author: Milford, Maureen
• Position: ACTIVIST INVESTORS

Nelson Peltz doesn't like to be ignored.

The activist investor made that clear in 2015 when his Trian Group launched a proxy war with DuPont Co.

During the battle, Peltz complained of repeated rebuffs by then-CEO Ellen Kullman when Trian attempted to discuss proposals for improving shareholder value. Trian alleged Kullman "immediately terminated" a call with Trian partner Edward Garden after he gave her an ultimatum about board seats, according to Trian's proxy filing.

"It very quickly got personally contentious," remembers Amy Bilbija, managing director of Strategic Governance Advisors in New York.

Things were different with Procter & Gamble Co. (P&G) when Trian came calling in early 2017. Initially, CEO David S.Taylor rolled out the welcome mat, based on Trian's proxy filing. Taylor even invited Peltz to address the company's global leadership team.

Yet, both industrial giants ended up going to the mat in historic proxy showdowns after they rejected Trian's demand for board seats. While DuPont narrowly defeated Trian, the price tag was enormous. DuPont's contest was reported to cost $15 million. Peltz, who according to preliminary results at presstime, narrowly won a seat on P&G's board, alleged on CNBC that P&G wasted more than $100 million. Add to this the months of disruption and use of management's time and energy.

This leads to the question: What's the best way for companies to defend themselves against increasingly powerful hedge funds and investors who show up with aggressive plans to unlock shareholder value? Investor agendas can be audacious, from removal of the CEO to sale of the company.

Corporate defense is no idle worry today. In 2016, activists launched 319 high-impact campaigns against U.S. companies, the third highest year since 2009, according to a February analysis by FactSet Research Systems Inc.

A high-impact push is one in which the dissatisfied shareholder goes after market-moving goals, such as board control.

In 2017, several well-known companies besides P&G faced campaigns. General Motors defeated Greenlight Capital in a proxy battle over a proposal to split GM's shares into two classes. Whole Foods Market Inc. got a push from Jana Partners, which demanded major changes or a sale. At Tiffany & Co., investor Jana Partners secured three board seats.

While activists cast their campaigns as designed to maximize shareholder value, it's difficult to find a consistent trend in the stock performance of companies that have...