DuPont – Trian Engages the Big Gun!

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DuPont – Trian Engages the BIG Gun!

Trian, today, announced the formation of Trian Advisory Partners, charged with the following:

“Trian Advisory Partners will provide support to Trian by identifying potential investment opportunities, assisting with due diligence, formulating strategic and operating initiatives for the companies in which Trian invests, and engaging with public company management teams, Boards of Directors, shareholders, and external advisors. Trian Advisory Partners may also join the Boards of Directors of companies in which Trian invests”.

The three founding partners are William R. Johnson – former Chairman and CEO of Heinz; Dennis Kass – former Chairman and CEO of Jennison Associates and former Chairman of Legg Mason; AND Dennis Reilley – former Chairman and CEO of Praxair, current board director at Dow Chemical, current Chairman of Marathon oil, AND FORMER COO of DuPont.

Dennis Reilley is arguably one of the best CEOs in recent memory in the chemical industry and Praxair’s shareholders saw a total shareholder return of around 250% from the day he was announced CEO until the day he retired.  Dennis drove the capital and operating discipline at Praxair that created the superior returns and a business process that, while refined by his successor Steve Angel, is now the blue print for Air Products strategy and Linde’s strategy if we believe recent investor presentations.

Dennis was very quick to recognize which parts of the industrial gas value chain were commoditized or undifferentiated and made these as low cost and efficient as possible.

While there is no mention in Trian’s release about which members of the team will be focused on which investments, current or under consideration, Dennis’s DuPont and operational experience make him the obvious big gun you want in any discussion about restructuring both the company and the way the company operates.

While the DD earnings call contained a great deal of rhetoric about why the company is on track, it is clear that cost cutting is a major part of the story today and clearly Q4 was helped by a significant tax break. The Chemours businesses are getting worse rather than better, and the projections call into question just how much free cash this spin-off company can generate – if any – and how much of any DD dividend or debt share can be carried by Chemours.  In our view, Chemours suffers from the same problem as DuPont overall – too many people. The whole company would benefit from the operational experience that someone like Dennis could bring.

We think that the upside in the stock comes from what can be achieved along the lines proposed by Trian and today’s announcement by Trian gives us more confidence that this can be achieved.  We have discussed possible valuation in prior research.

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