March 4, 2015 Bruce Goldfarb Quoted in Forbes Article on DuPont Proxy Fight

Trian’s Proxy War With DuPont Revives Dormant Voting Debate

By Antoine Gara, Forbes

Universal proxy ballots, the inclusion of board nominees from both sides of an activist fight on a single voting card, was key in Bill Ackman’s defeat by Target in 2009 and his successful ouster of Canadian Pacific’s board a few years later. Now, the proxy voting technicality is being revived in hedge fund Trian Management’s fight to gain entry into DuPont’s boardroom.

In late February, Trian asked DuPont to use a universal proxy ballot at its 2014 annual shareholder meeting, allowing  rank and file shareholders to vote between dissident and company-nominated board directors. Investors traditionally vote their shares using proxy cards, either backing the white cards that contain company nominees, or the gold cards that hold activist slates. However, activist funds increasingly want to give investors the option to split their vote if they don’t feel comfortable going all-in during an activist campaign.

For now, DuPont is resisting the notion of universal proxy voting. In response to Trian’s letter — which came weeks after DuPont rejected the hedge fund’s nominees and proposed its own directors — the company said on Tuesday afternoon it doesn’t believe the infrastructure is in place for universal proxy voting. As a result, the chemical giant still intends to rely on proxy cards, which will force shareholders to either vote for or against its slate of directors. DuPont also said it believes universal proxy cards could impede votes from retail shareholders.

We have serious concerns that sufficient infrastructure does not yet exist to support the use of a universal proxy card in this election. We believe that using this process could undermine voting access for retail shareholders,” the Ellen Kullman-run company said in a statement.

“For instance, we have been advised that the use of a universal proxy card would limit voting options for our “Street-name” holders, as well as deprive holders of the ability to simply sign and return voting forms without marking a preference. Confusion about universal proxy card voting processes could disenfranchise a significant portion of our retail base with respect to the election of directors,” DuPont added.

Currently, DuPont has roughly 1,400 institutional shareholders and nearly 600,000 individual shareholders, the company said. DuPont noted that that the use of universal proxies has been limited in the U.S. and mostly confined to small companies. ”We believe it would be inappropriate for a company with the size of our shareholder base to serve as a test case, especially as the matter at hand is so critical to the value of our shareholders’ investment.”

In early 2014, the Council of Institutional Investors petitioned for the SEC to push the use of universal proxies to better enfranchise shareholders, however, the Securities and Exchange Commission hasn’t yet established rules for the voting technique.

“I would be hesitant to make use of a universal ballot without more guidance from legislators and regulators,” said Bruce Goldfarb, CEO of proxy solicitor Okapi Partners. He noted issues such as how universal ballots would be distributed, what they would look like and how they would be counted remain unresolved issues.

“It is important for all sides to agree on the format and how the votes would be counted if a universal ballot were to be employed. We are not there yet in terms of thinking through those important implementation issues. The potential for investor confusion without proper education about the process is a valid concern,” Goldfarb concluded.

Goldman Sachs is advising DuPont as it works to fend off Trian Management, which initially argued the chemical giant should break apart into distinct business lines and is now gunning for board directors to implement a more aggressive capital structure.

While much of what DuPont is doing internally — including a spin of its Chemours business are in line with Trian’s thinking, one dealbreaker in the proxy war centers on leverage. DuPont wants to operate at modest levels of leverage, whereas Trian expects that the company can spin off business lines and independently lever them.

That plan, DuPont sources say, is “way too radical,” and particularly risky for its agriculture business, which currently relies on high bond ratings to access commercial paper markets for financing. Earlier in the year, DuPont offered Trian a board seat, however, the hedge fund rejected the overture and instead chose to wage a proxy fight.

DuPont shares fell less than 1% in Tuesday trading. Shares have gained over 17% during over the past 12-months.


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