Trian Partners 13D Investor Summit – DuPont Presentation H/T StockPucker

Nelson Peltz was kind enough to post his presentation on DuPont online.

It’s a short 12-slide presentation. Here’s the takeaway.

DuPont

 


 

Trian’s Investment Thesis For DuPont

  • When Trian issued its Summary White Paper (September 2014), Trian arrived at an implied target value per share in excess of $120(1) by the end of 2017, a 21% internal rate of return (IRR) for shareholders holding DuPont stock during this period
  • Key Assumptions for Trian’s Analysis:

– Valuation: 9.9x blended NTM EBITDA multiple(2)

– Best-in-class operating performance: Revenue growth and margins in-line with peers and management long-term targets

  • If one assumes a ~30% flow-through on incremental revenue, model implies less than $1bn of cost savings

– Prudent Leverage: 2x net debt/EBITDA across the businesses as a whole; maintain investment grade rating

– Focus on Returns to Shareholders: Grow dividend at 10% CAGR; assuming all excess free cash flow returned to shareholders

– Tax Rate: 33% tax rate (up from 22% expected in 2015(3)) across the business to provide flexibility with free cash flow

The CEO Seems to Lack Confidence In DuPont’s Share Price

  • The CEO sold ~54%(1) of her stock after Trian first invested (~$80m)(2)
  • 23%(1) of her equity position was sold in the week after the release of Trian’s Summary White Paper (September 2014), when the stock hit a new 15-year-high of $72.83
  • Despite rhetoric about a “higher growth, higher value strategy,” the CEO is not willing to “put her money where her mouth is”
  • Sold from long-term incentives and from stock options she had been granted, most of which did not expire until 2016 or 2017
  • We believe the reason management receives equity as part of compensation is to ensure their interests are aligned with the long-term interests of shareholders. The intention is not for management to sell prematurely
  • Ask yourself: If the CEO and Board members truly believed in their strategy wouldn’t they be buying stock?

See full presentation below.