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Peltz and Breen: Activist who pushed DuPont has a friend at Comcast, too

In 2013, investor Nelson Peltz called DuPont Co. management rich, slow, and unproductive, unleashing the radical reshaping of the chemical industry. Now he's targeting Comcast.

Nelson Peltz, chief executive officer of Trian Fund Management, speaks during the WSJDLive Global Technology Conference in Laguna Beach, Calif., on Oct. 25, 2016.
Nelson Peltz, chief executive officer of Trian Fund Management, speaks during the WSJDLive Global Technology Conference in Laguna Beach, Calif., on Oct. 25, 2016.Read morePatrick T. Fallon

Nelson Peltz is back in town. If you see the New York billionaire heading to the Comcast Technology Center to meet CEO Brian Roberts up at the Four Seasons, it won’t be the first time Peltz came here seeking riches since he first arrived as a Wharton undergrad 60 years ago.

That would have been three years before Brian’s father founded Comcast.

Back then, Peltz roomed off-campus with the kind of guys who put the green in the Ivy League — Joe Hill, whose father invented nylon for the DuPont Co.; Maury Povich, the future talk show king; and a couple of heirs to Philly’s Butcher & Singer investment banking house.

“Nelson was totally focused on money,” a classmate who knew him then recalls. “On getting rich as soon as possible. Deals, deals, deals.”

Peltz dropped out, bummed around skiing, then came home to build up his family’s food business, and used it to persuade Mike Milken, the Wharton grad, junk bond king, and pardoned felon, to finance his construction of National Can Co., a firm six times the size of the Peltz family concern. The deal made financiers rich, but left French buyer Pechiney so broke the company ended up shutting its aging plants in Fishtown and other U.S. cities. (some details added Oct. 9)

And now? “Comcast’s stock is undervalued,” Peltz, 78, said in a statement posted by his $10 billion investment company, Trian Partners. “Trian has begun what Trian believes are constructive discussions with Comcast’s management team and looks forward to continuing the dialogue.”

That was Sept. 21. The stock jumped 3.4 percent the next dayand has since stayed in the same range, while keeping a little ahead of the S&P 500.

Peltz spent about $800 million to buy 20 million Comcast shares, giving him a little less than half a percent of Comcast. If that doesn’t sound like a very big stake, you haven’t watched how activist (he prefers to say “engaged”) shareholders such as Peltz work, rallying other impatient investors to force radical change and squeeze out more cash for shareholders.

It’s what he says he did at DuPont Co. in Wilmington. He arrived there in 2013 with just a small slice of the company. After reshaping the global chemical industry, he left greatly enriched four years later and left a like-minded executive in charge of selling off the last business units.

That executive, Edward Breen, is now uniquely positioned to play a role in Peltz’s Comcast play because Breen is also Comcast’s lead independent director, a position meant to be a check on Roberts for Comcast’s outside shareholders. (Comcast hasn’t commented on Peltz. Breen didn’t respond to requests for comment through DuPont.)

What would shareholders change at Comcast? “There are a lot of investors who would like to see Comcast separate the cable business from NBCUniversal and Sky Television,” notes veteran telecom analyst Craig Moffett. The cable utility and the media companies “appeal to very different types of investors.”

Like Peltz, Roberts owns less than 1% of Comcast — but the boss still wields unusual power because he controls a third of Comcast’s voting shares.

That gives the CEO a big defensive edge, in case Peltz tries to lead another of his shareholder insurgencies.

“It’s hard to argue that Comcast is vulnerable to an activist,” Moffett told me. “This isn’t going to result in forced asset sales or management change.”

But Peltz has moved entrenched management before, including how he rolled DuPont, which also had a base of management-friendly shareholders, though not as concentrated as Comcast’s.

Like DuPont, Comcast is a large, well-known company, a legacy of a founding family, highly profitable, with diverse and arguably unconnected businesses, and a share price that frustrated investors say doesn’t reflect the potential of those businesses.

Peltz came calling in Wilmington in 2013, telling DuPont directors he had bought 2% of the company’s shares and wanted better returns on its long-moribund stock.

In the 1950s, DuPont had been the most valuable U.S. corporation, controlling General Motors and other DuPont customers. DuPont scientists, engineers, and marketers gave us Dacron and many other useful materials.

But in the decades after, antitrust lawyers forced the founding family to end its effective control over the company in the 1960s, and a string of grandiose DuPont CEOs lost their way. The executives flubbed multibillion investments in oil and drugs, cobbled together an unworkable collection of unlike businesses, and let R&D projects run for years — only to kill their creations if sales projections fell short of unrealistic targets.

By the time Peltz came along, DuPont shares had been flat for most of 20 years, but the company still owned a 40-building R&D center, three golf courses, a massive headquarters with a luxury hotel, and a Broadway theater. All of which Peltz rightly called symbols of an outdated, wasteful “country club” mentality.

Peltz demanded higher profits through “elimination of excess corporate costs, improved capital allocation, and improved corporate governance.” DuPont CEO Ellen Kullman knew exactly what that all meant: that the corporation needed to throw more cash at investors like him by cutting research, whacking other expenses, and selling off the most desirable parts of the enterprise at premium prices.

Kullman did all that. And Peltz applauded the addition to the board of Breen, the New Hope resident who as reform CEO of Tyco International had fired 300 managers and sold off the tainted company piece by piece — his method, in a phrase much loved by Peltz and Breen, to “unlock value” for shareholders.

For Peltz, it wasn’t enough. In 2015, he mounted his own board slate to challenge Kullman’s allies. Midsize investment firms, proxy advisers, and out-of-town shareholders endorsed his cause. Peltz brought an entourage to DuPont’s annual meeting, braving a crowd of DuPont pensioners who feared that Peltz would cut medical benefits.

Kullman’s slate won that battle. The two biggest U.S. investment companies, BlackRock and Vanguard, which seldom buck entrenched corporate bosses, joined DuPont’s small army of shareowning employees, retirees, and some descendants of the founders to back the status quo.

But Peltz won the war. After Kullman failed once again to meet profit projections, the DuPont board replaced her with Breen, who cut DuPont’s research outlay and its excessive spending. He also had Peltz help negotiate a plan to merge DuPont with Dow Chemical and quickly split the new behemoth into smaller, more focused companies.

Two years later, Peltz declared victory and sold his shares, which had doubled in value. (The stock has since fallen.) Breen still runs what’s left and continues to find buyers for remaining DuPont businesses.

Meanwhile, in his role at Comcast, Breen is not only lead director; he is also a man who enjoys Peltz’s confidence. That would make him a natural conduit between Peltz and Roberts, according to people familiar with both men.

Maybe Breen will turn out to be more than a messenger. Perhaps he is the man with the standing to act as a persuader, to let Roberts know it’s time to unravel the knot he tied joining several unlike businesses in a conglomerate that doesn’t especially please the stock market.

Maybe Breen is even capable of replacing Roberts, should he and Peltz fail to cut a deal, and enough directors and investors decide it’s time for a change.