(Reuters) - Activist investor Nelson Peltz’s Trian Fund Management LP urged DuPont to break itself up, saying that efforts already underway at the industrial conglomerate to shed some of its businesses were not enough to fix what it called the company’s “underperformance.”
Shares of DuPont - a sprawling 212-year-old company that makes food enzymes, nylon and detergents, among thousands of other products - rose 4.3 percent in early trading on Wednesday, after Trian went public with its proposal to separate DuPont’s high-growth businesses from the more cyclical ones.
Peltz, whose Trian Fund holds a $1.6 billion stake in DuPont, wants the company to separate its agriculture, nutrition and health, and industrial biosciences divisions from units that generate strong cash flows but are more volatile.
DuPont, which is focusing on agriculture, energy and specialty materials, is already working on plans to spin off its performance chemical business, which makes materials such as Teflon and represents nearly 20 percent of its revenue.
The company has previously announced a $5 billion share repurchase program as well as an initiative to cut costs by $1 billion.
In a statement on Wednesday, DuPont noted that it has delivered a 220 percent return to shareholders since 2008, outpacing the 144 percent return for the Standard & Poor’s 500-stock index during that same time.
“DuPont welcomes open communications with shareholders and values input toward our common goal of enhancing shareholder value... We have had a constructive dialogue with Trian,” DuPont said.
Trian Fund’s proposals were unlikely to be adopted by DuPont’s current management, said Suntrust Robinson Humphrey analyst James Sheehan. “I think it will take a long time for the two sides to agree on the right corporate strategy, and Trian could be involved in an extended proxy battle.”
Trian Fund, which first disclosed its stake last year and had been in discussion with DuPont since then, said in a Sept. 16 letter to the company’s board that it would begin meeting other shareholders.
“We can no longer be silent as DuPont continues to struggle to execute what we are convinced is a flawed business plan, especially as we have a solution that we believe could double the value of DuPont’s shares over the next three years,” Trian Fund wrote in the letter released on Wednesday.
DuPont shares are trading at nearly 15 times its 12-month forward earnings, lagging those of seed maker Monsanto Co, which is trading at 19 times. The stock trades at a premium to chemicals maker BASF Se, whose shares are trading at about 12 times earnings.
Trian’s stake in DuPont would translate into 24.3 million shares based on the stock’s Tuesday close, making it the sixth- largest shareholder, according to Thomson Reuters data.
In October last year, DuPont announced plans to spin off its performance chemicals business into a separately traded public company. The unit makes titanium dioxide, a popular pigment found in products ranging from car paint to sunscreen, as well as refrigerants, and has suffered from industry volatility that has widely affected DuPont’s profit and stock price for years.
The timing of Trian’s proposals was “awkward” as DuPont’s pesticides business has been pressured by low crop prices, said UBS analyst John Roberts.
DuPont has forecast a loss for the business in the current quarter.
Rival Dow Chemical Co is also facing pressure from activist investor Daniel Loeb to separate its commodity raw materials businesses from agriculture and other specialty chemicals.
Peltz said his proposal for DuPont would eliminate $2 billion to $4 billion in annual costs.
The billionaire investor has been the force behind some large splits in the food industry. He played a role in the breakup of Kraft into Kraft Foods Group Inc and Mondelez International Inc.
DuPont’s shares were up $2.91 at $68.74 in morning trading on the New York Stock Exchange.
Additional reporting by Soyoung Kim and Supriya Kurane in Bangalore; Editing by Sriraj Kalluvila and Dan Grebler