Dupont And Dow Chemical Controversy

How would you differentiate a good investor and a bad investor? How active should you be in the company you invest? Activist investors have lately gained public attention as they try to use their equity stake to persuade other shareholders to make substantial changes in companies in order to increase its value. Opponents of the idea argue that there is no need of breaking up and restructuring well-established companies. Especially when the activist investors buy stakes in companies to use power by aggressively pressing their ideas onto shareholders. The latest example of a controversy would be DuPont and Dow Chemical, two of the largest chemical companies being under pressure of activist investors Nelson Peltz and Daniel Loeb. Both of them

However, if their main focus is to make as much money as they can in a short period of time is not going to bring any benefits for the company. The WSJ writes, “Corporations have become too obsessed with the short-term satisfaction of investors, particularly vocal activist shareholders, at the expense of future growth.” It proves that the entire focus on a personal gain is not going to bring any good for the company but only satisfy the appetite of such investors. Mr. Nelson proposed to split DuPont into two different companies where one focuses on agriculture and nutrition and the other on industrial materials, which would help eliminate operational costs and give an opportunity to focus on narrow businesses. Such actions would generate more profit for both of the companies in the long run. DuPont Chief Executive Ellen Kullman argues, “ There is a lot of power in being able to deliver greater capability to [customers] than being very narrow.” While it worked for DuPont for many years, with the recent profit declines there was definitely needed to be some changes done. Mr. Nelson’s records show his success with other industries such as Kraft, Wendy’s and Ingersoll-Rand PLC. It proves that he strategies worked for such big companies and had a high chance of success with DuPont as well. It is hard to argue whether Mr. Peltz had the best interests at heart for making

When Mr. Peltz and Mr. Loeb came to DuPont and Dow Chemicals respectively with new ideas it brought positive results for the companies. Mr. Loeb had 2% stake in Dow Chemicals and insisted on the company’s break up. He aggressively pushed his ideas through pressure on the board, questioning a possible merger with DuPont as well as Dow Chief Executive Andrew Liveris’s personal spending, and publicly attacking him through website videos that he created for that purposes. Partly because of Mr. Loeb’s campaign through a routine audit committee investigation Mr. Liveris paid back $719,000 to the company. The WSJ writes, “ Activists are owners whose focus on value protects investors from managers who can become too self-interested.” We see this confirmation in the case of Mr. Liveris. Mr. Loeb’s proposal also led to the cohesion between the shareholders who unanimously supported the deal with DuPont. We are seeing a similar situation at DuPont. When Mr. Peltz came with the proposition of dividing the company, he encountered resistance from the board and Ms. Kullman. As in the case of Dow, Ms. Kullman gained a full support of her strategy from the largest shareholders. It also pressed her to review the company’s approach and in the end “shares had climbed about 160% through Tuesday’s close, outpacing the S&P 500 stock index.” Under her management DuPont cut $2 billion in expenses, which led to higher earnings and