By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
In the electric utility industry, the term “stranded costs” refers to past investments used to build infrastructure that, as a result of deregulation, may become redundant and of no value. The jargon has surfaced lately in a different, but no less electrifying, context: uppity investor Nelson Peltz’s siege of one of America’s most venerable corporations, DuPont.
The billionaire is enlisting some controversial arithmetic to suggest the $65 billion chemicals giant has grown so bloated over the past 212 years that it can only be saved by being dynamited in two. Central to the thesis that Peltz’s Trian Fund Management has put forward to investors is a determination of whether the so-called stranded costs at DuPont are just a corporate euphemism for fat.
Before plumbing the specifics of Peltz’s arguments, it’s worth considering why DuPont makes a fascinating target for activism in the first place. For starters, it’s a very old company. Frenchman Éleuthère Irénée du Pont broke ground for his first gunpowder mills on Delaware’s Brandywine River in 1802. That potentially means the company has had two centuries to build up excessive costs or sclerotic processes that can be squeezed to benefit the bottom line.
On the other hand, DuPont also has built up a resiliency and pride among its many constituents that will factor into any confrontation. According to DuPont’s official history, after establishing those first mills, the eponymous founder “spent the remainder of his life keeping them, going through explosions, floods, financial straits, pressures from nervous stockholders, and labor difficulties.”