WILMINGTON, Del. (CN) – DuPont is spinning off its performance chemicals division to stifle shareholders’ rights and make the new company takeover-proof, a trust claims in a shareholder class action.
DuPont wants to “impede the exercise of stockholder voting rights by transferring a substantial business segment to a new takeover proof entity controlled by former or current DuPont board members and other members hand-selected by DuPont,” the Vladimir Gusinsky Living Trust claims in its March 18 complaint in Chancery Court.
The trust says DuPont is doing it in response to a proxy contest waged by activist investor Nelson Peltz, who proposed two nominees to the DuPont board and another two nominees to the Chemours board.
The DuPont board “will impose Draconian voting restrictions and anti-takeover provisions on SpinCo [Chemours], including a certificate of incorporation providing for a staggered board with three-year terms, a prohibition on stockholders acting by written consent, a 35% threshold for stockholders to call a special meeting, an 80% threshold to amend any of the foregoing provisions and by-laws providing for 90-day advance notice requirements for stockholder proposals and nominations,” according to the complaint.
DuPont will issue shareholders stock in the spinoff company, but their value will be “impaired because the proposed anti-takeover measures will prevent an effective proxy contest or change-in-control transaction,” says the trust.
Because stockholders do not get to vote on these provisions, DuPont’s directors are “evading the stockholder vote required by Delaware law by spinning off a substantial usiness segment into a new company and causing that new company’s charter to contain a classified board provision,” the trust says.
Classified boards, also known as staggered boards, can serve as a powerful anti-takeover measure.
The fight between Peltz and DuPont goes back to 2013, when his investment company, Trian Fund Management LP, bought a very large stake in DuPont, citing underperformance of the company’s stock over the previous 10 years compared to similar conglomerates.
Peltz’s Trian Fund Management has led reorganization efforts of many older companies, such as H.J. Heinz.
DuPont’s board reacted to this acquisition by amending DuPont’s bylaws to make it “more difficult for stockholders to nominate directors or make other proposals at annual meetings,” the trust says.
DuPont also changed one of its “guiding principles” for executive compensation during this time by adopting golden parachute packages for executive officers, says the trust.
Shortly thereafter, DuPont announced the spin-off of Chemours, which brings in about $6.5 billion annually for DuPont, accounting for nearly 19% of DuPont’s revenue.
In 2014 Peltz and Trian redoubled their efforts by accusing the DuPont board in a lengthy letter of “destroying value” through corporate ‘”bureaucracy and … lack of accountability,” highlighting “$2 to $4 billion of excess corporate costs including … the maintenance of a country club, a 1,252-seat theatre and a 217-room hotel,”‘ the trust claims in the new lawsuit.
DuPont then filed a Form 10 Registration Statement for The Chemours Company, announcing the spinoff and detailing the board’s intention to “subject the stockholders’ interest in Chemours to extreme corporate governance measures,” the complaint states.
The trust wants the spinoff enjoined “unless and until defendants have acted in accordance with their fiduciary duties,” and/or the voting restrictions and anti-takeover provisions enjoined, plus damages for breach of fiduciary duty, and costs.
It is represented by Kevin Davenport, with Prickett Jones & Elliott.
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