Activism’s Long Road From Corporate Raiding to Banner Year Dec 25, 2015 By David Benoit

Change in tactics let industry move beyond controversial past

http://graphics.wsj.com/activist-investor/#FBHS

When activist investor Nelson Peltz demanded board seats at H.J.

Heinz Co. in 2006, both the company and its headquarters city were indignant.

The Pittsburgh newspaper ran editorials urging support for the “hometown team.” Heinz gave employees bottles of its signature ketchup with custom labels urging them to vote against Mr. Peltz’s nominees. “We thought, ‘Gosh, we don’t need outside help,’ ” recalls Art Winkleblack, then the company’s chief financial officer.

This June, nearly a decade later, Mr. Peltz’s Trian Fund Management LP got an entirely different reception after buying a 7% stake in Pentair PLC, a Minnesota maker of pumps and valves. Pentair Chief Executive Randall Hogan spoke several times with Trian co-founder Ed Garden about corporate strategies and promptly moved to add Mr. Garden to its board.

“You never know what you don’t know,” Mr. Hogan says of his willingness to listen to the activists.

After decades of being treated as boorish gate-crashers, activist investors are infiltrating the boardrooms of large companies like never before. This year activists launched more campaigns in the U.S.—360 through Dec. 17—than any other year on record, according to FactSet. They secured corporate board seats in 127 of those campaigns, blowing past last year’s record of 107. Activists now manage more than $120 billion in investor capital, double what they had just three years ago, according to researcher HFR.

The industry has come a long way since the 1980s, when Carl Icahn, Saul Steinberg, T. Boone Pickens and other mavericks would amass large stakes in companies and demand a sale of the entire company. They were called “corporate raiders” and “greenmailers” and were widely criticized.

These days activists, while not exactly welcomed in corporate boardrooms, are rarely treated as ill-mannered outsiders. “These activist funds are just a different asset class who have the same pensions and endowments investing in them as other funds,” says Rob Kindler, head of mergers and acquisitions at Morgan Stanley . “The demonization of activists, when really what they are doing is providing returns to the same pension and endowment plans, just seems overdone.”

Several factors contributed to this shift, according to corporate executives, activists, bankers and lawyers. The financial crisis fanned dissatisfaction with corporate executives and brought low interest rates that helped activists thrive. Activists got more sophisticated about analyzing target companies and built alliances with other big shareholders, including mutual funds. And broad shifts in corporate governance gave more power to all shareholders, including activists.

M&A lawyer Martin Lipton, who for years has represented companies facing battles for board seats, this year called on clients to consider settling with some activists. “There is no timely way anymore for a company to be slow about responding to a decline in performance or pursuit of the strategy,” he noted in an interview.

This year, returns for activist hedge funds averaged 3.4% through November, beating the hedge-fund average of 0.3% and the S&P

500’s 3% total return, according to industry research group HFR. Over the past five years, activist funds have returned an annual average of 8.2%, compared with the average hedge fund’s 3.2% return, HFR says.

The debate about whether activism is good for U.S. companies over the long term hasn’t gone away, most recently popping up in the presidential campaign of Hillary Clinton. She has decried “hit-and-run” activists, while also saying some activists help hold managers accountable.

Mr. Lipton has voiced similar complaints. “Much of what is wrong with America today—slow growth, widespread corporate scandals, inadequate investment in long-term projects, low wages that have not kept pace with inflation, wide swings in the economy accompanied by uncertain employment and rising inequality—is attributable to short-termism and attacks, and threats of attacks, by activist hedge funds,” he wrote recently.

Activist were a different breed back in the late 1970s and 1980s. They made “midnight raids” on stocks, building large, often controlling, stakes. Then they pushed companies to sell themselves to the highest bidder or to the raider himself, or to buy back their positions at above-market prices, a practice known as greenmail.

When Mr. Pickens bought stock in Gulf Oil Corp. in 1982, he was greeted by a lawsuit and spent months trying to get a meeting with the Chief Executive James Lee. Mr. Pickens contended the company was mismanaged, and he wanted to take control.

Other shareholders were suspicious. “One said ‘He’s a fast-buck artist,’ ” Mr. Pickens recalled in a recent interview. “I said, ‘Who in the hell wants to be a slow-buck artist?’ ”

The saga ended two years later when the company later known as Chevron Corp. swooped in to buy Gulf for $13 billion, delivering Mr. Pickens a substantial profit.

In 1984 alone, public companies paid $3.5 billion in greenmail, with payments above market price accounting for $600 million, according to a study by the Securities and Exchange Commission.

Such tactics generally outraged other investors and ensured that raiders remained on the investment world’s fringe. In 1987, the Internal Revenue Service introduced a tax of 50% on profits from greenmail, and several states passed laws making it hard for companies to buy back stakes from short-term investors at a premium.

By the 1990s, when a bull market took hold, those practices had largely faded. Targeting big companies was out of the reach for most activists because their funds remained small. And with stocks booming, there was scant investor demand for taking on prominent CEOs.

See what happened at large U.S. companies targeted by activist investors.

The collapse of Enron Corp. and WorldCom Inc. in the early 2000s led more shareholders to question whether managers were acting in their best interests. It was around that time that today’s activists started forming funds, including what would become Starboard Value Fund and Barry Rosenstein ’s Jana Partners LLC.

Mr. Rosenstein, who once worked for corporate raider Asher Edelman, launched his fund in 2001 but found few investors interested in targeting companies and agitating for change.

“One person I pitched said ‘This is not a strategy,’” Mr. Rosenstein recalls. “Nobody was doing it.”

He raised about $20 million, opened shop with just three employees and started investing in small companies, including Herbalife Ltd. , then a lesser-known nutritional-shake maker, and York Group Inc., a casket maker.

Mr. Rosenstein and his fellow activists hoped to follow a path to respectability blazed by private-equity funds, who had largely shed their image as buyout “barbarians” and transformed themselves into respected, publicly traded institutions. To do that, activists needed to persuade others, including potential allies at mutual funds, they were interested in building value at target companies, not just making a quick buck.

It was during this period that Mr. Peltz launched his proxy fight at Heinz. When company shareholders met to elect the board, the tension was thick. Mutual fund Capital Research & Management Co., a large shareholder, voted for some Trian nominees, stunning Heinz executives and helping put Mr. Peltz and an ally on the board.

After winning the vote, Trian didn’t push a quick sale, but stayed around. Board members say Trian helped focus the company on cutting certain costs and increased spending on marketing, and sped up the company’s timetable for moves that improved profit margins.

“They didn’t come in with a sledgehammer saying you have to do it this way,” says Mr. Winkleblack, then CFO.

Investor T. Boone Pickens, left, greeted Gulf Oil CEO James Lee in 1983 after he

bought stock in the company. Photo: GENE J. PUSKAR/ASSOCIATED PRESS

“It was so seminal because it was a huge company to go after at that time,” says Chris Young, an activism-defense banker at Credit Suisse Group AG . “It was operational in nature, and you got mainstream, long-only investor support. That, I think, started opening people’s minds to the art of the possible.”

In 2013, Heinz was sold to Brazilian private-equity firm 3G Capital Partners LP and Warren Buffett ’s Berkshire Hathaway Inc. William Johnson, then Heinz’s CEO, now is an adviser to Trian, and Mr. Winkleblack was a Trian board nominee at DuPont Co.

The financial crisis that began in 2008 was a setback for many

activists, who saw their funds lose billions. But ultimately it created fertile conditions for the current activism boom.

In the wake of the crisis, many corporate executives took a more-conservative approach, not wanting to be seen as risk-takers. They hoarded cash and avoided big spending. When interest rates dropped, they borrowed money not for expansion, but to buy back stock and increase dividends—exactly what some activists were pushing for. Critics of such moves say companies would be better off using capital on long-term investments such as infrastructure, research and employees, but activists say managers have proven poor spenders and shareholders can handle the money better.

At the same time, changes in corporate governance were making it easier for activists to win board seats. Between 2011 to 2014, a group at Harvard University led by professor Lucian Bebchuk campaigned to get more than 100 major companies to put their entire boards up for annual election, instead of staggering directors in multiyear terms.

Annual elections give activists leverage because boards can be overturned in one fell swoop rather than over a series of years. In 2000, 300 of the S&P 500 companies had staggered boards. This year, only 49 do.

Barry Rosenstein found few investors interested in activism when he launched

Jana Partners in 2001. Photo: ERIC THAYER/REUTERS

Perhaps the most important change, according to both activists and their detractors, is that activists got more sophisticated about analyzing how to improve operations at target companies. They recruited executives with experience in the relevant industries to work alongside them on campaigns.

In 2012, for example, William Ackman ’s Pershing Square Capital Management LP launched a proxy fight against Canadian Pacific Railway Ltd. When Pershing Square called the former boss of rival Canadian National Railway Co. , Hunter Harrison, for advice, it found a willing partner. Pershing Square campaigned with Mr. Harrison as its CEO candidate, eventually winning seven board seats and putting Mr.

Harrison in charge.

Mr. Rosenstein’s Jana Partners, which now employs more than 50 and runs more than $10 billion in assets, typically presents companies with several-step plans about how they can cut costs, restructure their balance sheets, shed assets and change strategy.

Last year, drugstore chain Walgreen Co. agreed to put Mr. Rosenstein on its board and gave him a say in two other seats, all without a threat of a public fight and a stake of only 1%.

Similarly, in 2013, Microsoft Corp. said it would add a ValueAct Capital Management LP partner to its board, even though ValueAct held a stake of just 1%. Behind the scenes, ValueAct had support from some of Microsoft’s biggest shareholders, including Franklin Templeton Investments and Capital Research.

Trian has gained board seats, without a fight, at companies ranging from fast-food chain Wendy’s Co. to Bank of New York Mellon Corp. This year, it took a stake in food distributor Sysco Corp. and was given two seats only a week after meeting management.

“They aren’t on a search-and-destroy mission,” says Wesley von Schack, the lead director of Bank of New York Mellon. “They come in and speak to the right issues.”

Activist thinking now appears to be influencing even executives who haven’t been targeted. Executives now routinely talk about the return on every dollar spent—a frequent focus of activists. Chief executives appointed this year by McDonald’s Corp. and United Technologies Corp. have called themselves internal activists.

“We’re the activists at UTC,” United Technologies CEO Gregory Hayes

said in October. “If an activist wants to come in and make a suggestion that we do it, we can say, ‘Been there, done that.’ ”

General Electric Co. Chief Executive Jeffrey Immelt has gone so far as to invite one activist to get involved in his company.

When GE announced in April that it would shed GE Capital, its finance arm, Mr. Peltz, who wasn’t an investor, called to congratulate Mr. Immelt.

“I’d love to have you in the stock,” Mr. Immelt told Mr. Peltz.

As Trian did due diligence, it urged Mr. Immelt and his team to eliminate more of GE Capital than planned and to tap the debt markets for buybacks. GE executives felt the activist was in the right ballpark. Trian invested $2.5 billion, its biggest investment ever.

A month after the stake was disclosed, GE’s stock crossed $30 a share for the first time since the financial crisis.

Dow, DuPont Deal Cements Activists’ Rise

Activist investor Nelson Peltz, above, played a role in helping plan and execute the Dow-DuPont deal. Photo: David A. Grogan/CNBC/Getty ImagesByDavid BenoitUpdated Dec. 11, 2015 9:52 p.m.

Dow Chemical Co. and DuPont Co. announced plans to merge Friday in a transaction that combines two longtime rivals and heralds the arrival of a new era of activist investing.Dow and DuPont said they would combine into a chemical giant worth more than $120 billion before splitting up into three separate companies. While the plan was hatched by the companies’ chief executives, they worked alongside activist investor Nelson Peltz, who played a central role in helping plan and execute the deal, according to those involved.

As the merger plan came together in recent weeks, Mr. Peltz and his colleague Ed Garden of Trian Fund Management LP worked behind the scenes with Dow Chief Executive Andrew Liveris and DuPont’s Edward Breen.That campaign kicked off when Messrs. Peltz and Garden were invited in October to meet with DuPont’s board in Baltimore. At the meeting, the men encouraged the board to pursue a tie-up with Dow—a move that, unbeknown to them, was recently under way.The involvement of Trian is the latest sign of the growing clout of activists. While they have become increasingly powerful in recent years, forcing companies to do everything from buying back stock to selling assets, their ability to help bring about such a monumental deal represents a new high.Once viewed as fighters from the fringe who would be kept far from deal talks of two iconic companies, activist investors have won acceptance from some executives and boards, who now sometimes court their detailed analysis and thinking on decision making. That has placed them at the center of some recent deals, such as the ongoing role of William Ackman of Pershing Square Capital Management LP in trying to merge railroads Canadian Pacific Railway Ltd. and Norfolk Southern Corp.

Another activist, Daniel Loeb ’s Third Point LLC, also played a role in the DowDuPont deal, albeit an indirect one. Mr. Loeb had pressured Dow to break itself up last year and had criticized Mr. Liveris, but had settled a pending proxy fight in exchange for two

directors. As part of that pact, Mr. Loeb was barred from public comments on Dow for a year, but had privately kept his own pressure on Dow’s board and Mr. Liveris.He wasn’t involved in the deal talks and wasn’t made aware before The Wall Street Journal reported on the talks earlier this week. But his standstill expires this weekend, meaning he could have started a new fight soon, a possibility that was known during the deliberations.The following account is based on interviews with numerous people close to the negotiations.Mr. Liveris called Mr. Breen as soon as he was named interim CEO at DuPont in October. Mr. Breen knew what the call was about before he even picked up the phone, he said in an interview.Messrs. Liveris and Breen, who had never met, agreed to get together the following Sunday for brunch at a Philadelphia hotel. They spent the afternoon discussing the benefits of bringing the companies together and then breaking them into new entities. Mr. Liveris pressed to move quickly, hinting that he had other options.Mr. Breen asked for a few days, and called back quickly, ready to press forward on a deal.The timing was right for both sides. Commodity prices continued to sink and the U.S. dollar grew stronger, denting revenue for both companies. Meanwhile, the companies’ stock-market values were just about the same, making a merger of equals easier to strike. Then, Mr. Breen, a known deal maker, was given the reins with a mandate to change the 213-year-old

company.Messrs. Breen and Liveris then met numerous times at various hotels and sketched out the broad details of an agreement, handing back and forth a roughly seven-page document. Advisers reminded them that mergers-of-equals often founder when details aren’t agreed upon early.A couple of weeks later, Messrs. Peltz and Garden were invited to meet the entire DuPont board. It was the first meeting with the whole board since they had begun a campaign for change at the company more than two years earlier.In the Four Seasons Hotel in Baltimore, the Trian duo sat at a small table facing a large U-shaped table where the board of Wilmington, Del.-based DuPont sat and listened. The directors said little.Trian didn’t hold back, chastising the board for disappointing results at the company and a spinoff they considered poorly executed. The activists, representing DuPont’s fifth-largest shareholder with a roughly 3% stake, said they would support Mr. Breen being named permanent CEO but wanted to see one of three things happen: A breakup of DuPont; a deal between its agriculture business and Syngenta AG ; or a merger with Dow. They made clear the deal with Midland, Mich.-based Dow was their preferred option.Mr. Peltz had already learned from a lunch with Mr. Liveris in late 2014 that Dow could be interested in a deal, and the two discussed how one could be structured. Mr. Liveris, had long desired the deal and previously worked out a plan with help from his banker Michael Klein, founder of Klein & Co. But on

this day he demurred: The timing wasn’t right.At the Baltimore meeting, Mr. Breen gave no hint to the investors he was already along the path toward a deal.But after becoming permanent CEO in November, Mr. Breen arrived at Trian’s office in New York the week of Thanksgiving with Roger Altman, the banker and former deputy treasury secretary, with a nondisclosure agreement for Trian officials to sign. Once they had done so, they let the activists in on the secret: Dow and DuPont were in talks for a deal and a subsequent breakup.Both Dow and DuPont wanted Trian’s input on how to execute the breakup, tapping its extensive history in separating industrial conglomerates. Trian leapt into action and signed a separate nondisclosure agreement with Dow. But it gave the sides only 30 days to strike a deal.Mr. Peltz invited Mr. Liveris and his chief operating officer, James Fitterling, to his sprawling mansion in Palm Beach, Fla., the Monday after Thanksgiving for an all-day discussion on which businesses belonged where.

The group painstakingly went through each business’s customers, raw materials, costs and sales forces. Trian reported back to Mr. Breen on how they thought the split should work.

Once the sides agreed on the structure, Dow and DuPont gathered hundreds of advisers, including bankers from Lazard Ltd. , Morgan Stanley and Goldman Sachs Group Inc., in the General Motors building overlooking Central Park in New York.They dug in, looking at where the combined company could find savings. For a week, the teams discussed how they would build the company from scratch in the most efficient way.When they were done, they had identified more than $3 billion in costs they could eliminate. Executives Friday touted the 4,000 hours poured into the math, assuring that the so-called synergy figure is a real one they expect to beat.As a merger of equals, each side’s shareholders will get roughly 50% of the combined company, and the board will be split 50/50. Mr. Liveris will be executive chairman and Mr. Breen, chief executive. Mr. Liveris said Friday that he and Mr. Breen had “checked their egos at the door.”Yet a diverging future for the two chief executives also appeared to emerge Friday.Mr. Liveris described the accord as the end of a long road and hinted he may be retiring before long.“I do want to eventually go to the place where the future of the company is not just beholden to my presence,” he said on a conference call.Seven months ago, DuPont had beaten Trian in a proxy fight, a victory some thought could mark a pushback on activism’s rise. Now, Trian looks vindicated, says Chris Davis, a lawyer who advises activists at Kleinberg, Kaplan, Wolff & Cohen P.C.

“America’s corporate landscape is being permanently reshaped under the influence of two of its pre-eminent activists,” Mr. Davis said. “Public directors may want to rethink the DuPont narrative.”

DuPont, Dow Chemical Agree to Merge, Then Break Up Into Three Companies Dec 11, 2015 By David Benoit, Jacob Bunge and Chelsey Dulaney

Deal forms $130 billion chemical, agricultural giant amid weakening commodity prices

Dow Chemical Co. DOW -4.77 % and DuPont Co. DD -5.35 %

announced Friday that they have agreed to merge, fusing two of the U.S.’s oldest companies into a chemical giant currently worth about $130 billion.

The deal would reshape the chemical and agricultural industries and comes as sinking commodity prices and a strengthening U.S. dollar have pressured revenue at both Dow and DuPont. The combination was pitched as a way to help the companies find synergies before breaking up into three businesses down the road.

Dow’s shares slid 1.7% in premarket trading, while DuPont shares fell 4.7% as the company also announced restructuring plans and gave downbeat comments on its 2016 sales growth.

Under the deal’s terms, shareholders of Dow Chemical will get 1 share in the new company called DowDuPont for each Dow share, while DuPont shareholders will get 1.282 shares for each DuPont share. The deal’s structure will give Dow and DuPont shareholders equal stakes in the combined company, excluding the impact of preferred shares.

Dow’s Chief Executive Andrew Liveris will be executive chairman of the new company, with DuPont Chief Executive Edward Breen keeping the CEO title. DowDuPont will have dual headquarters in Midland, Mich., and Wilmington, Del.

The deal “was always in front of us to get done, in the right way,” Mr. Liveris said in an interview. “We believe this is the right way.” The Wall Street Journal reported the companies were in talks to merge on Tuesday.

Mr. Breen said DuPont’s board, which he joined early last year, also had looked at the possibility of combining with its longtime rival in chemicals. He said Mr. Liveris called him on Mr. Breen’s first day

running DuPont in October, and pursuing a merger became easier because the companies were almost exactly the same size by market value.

“That always makes for quicker, easier negotiation,” Mr. Breen said. Structuring the deal as a merger of equals will also help minimize taxes paid on the transaction, he said.

The companies expect the merger, which must be approved by regulators and both companies’ shareholders, to be completed by the second half of 2016.

The deal would be followed by a three-way breakup of the combined company, a common approach to mergers and acquisitions of late. The three resulting companies, which would be publicly traded, would be focused on agriculture, material sciences and specialty products.

The companies said the breakup would occur “as soon as feasible” but that it still could take up to two years after the merger announced Friday closes, suggesting the breakup may not occur until 2018.

Mr. Liveris and Mr. Breen said they haven’t yet determined what their roles would be when the combined DowDuPont splits into three separate companies.

There is no guarantee antitrust regulators would bless the union or that a breakup plan would address any such concerns. The merger would combine two top suppliers of industrial and agricultural chemicals and crop seeds, but it comes as sinking commodity prices and a strengthening U.S. dollar have hurt revenue across the companies’ business lines.

Mr. Breen said no major divestitures were expected as the deal goes before antitrust reviewers. Dow and DuPont both will likely sell minor pieces of their businesses, “but nothing that would move the needle,” Mr. Breen said.

Mr. Breen said that merging with Dow and then breaking the combined entity into three units is far preferable to a split of DuPont itself, a path proposed in late 2014 by activist investment firm Trian Fund Management LP. The planned deal is “a totally different scenario,” Mr. Breen said. “We’ve created three leading, strategic platforms, instead of splitting DuPont into three small pieces,” he said.

Should the deal come to fruition, a combination of the companies, each more than a century old, would be one of the biggest in a year marked by big deals. So far, companies have struck some $4.35 trillion of takeovers in 2015, eclipsing 2007 as the top year on record for deals, according to Dealogic.

Both Dow and DuPont have been restructuring their businesses as they’ve come under pressure from shareholders to slim themselves and focus on faster-growing business lines—sometimes by shedding products that made them famous.

DuPont has exited performance paints and coatings, including the business that invented Teflon nonstick pan coating. Dow, meanwhile, has gotten out of selling materials like chlorine and the epoxy used in everything from space travel to Ziploc bags.

The companies expect a combination would accelerate cost-cutting and see the deal resulting in $3 billion in cost synergies, to be fully realized within two years of the deal’s closing.

Ahead of the merger, Dow and DuPont said they would further reshape their businesses.

DuPont said separately Friday that it would cut $700 million in costs in 2016, affecting 10% of its global workforce. DuPont had about 63,000 employees at the end of 2014, according to a regulatory filing. The company expects to book a pretax charge of $780 million related to the cuts.

DuPont said it expects sales growth next year to be “challenging” because of agricultural headwinds and the strengthening of the U.S. dollar against the Brazilian Real. DuPont will give guidance for 2016 on Jan. 27.

For its part, Dow said that it would take full ownership of Dow Corning Corp. GLW 3.48 % , which it jointly owns with Corning Inc. Dow said it expects the move to yield more than $1 billion in annual earnings before interest, taxes, depreciation and amortization. That transaction is slated to close by the first half of 2016.

The DowDuPont deal comes shortly after DuPont named Mr. Breen, a turnaround expert, as the company’s chief executive after a stint as interim CEO. Prior CEO Ellen Kullman retired after fending off Nelson Peltz and Trian Fund Management LP, which sought board seats and criticized the company—and its leadership—for bloated corporate spending and a continued failure to hit earnings forecasts.

Soon after Mr. Breen stepped in to run DuPont in October, Mr. Liveris called him to propose a deal. For more than a decade, Mr. Liveris had sought to merge with DuPont, and he pitched a deal as a way to find synergies before breaking up the businesses into more focused operations, the people said.

For its part, Dow also has had an activist investor. Last year, the company added two directors nominated by Daniel Loeb ’s Third Point LLC after Mr. Loeb sought a breakup of the company and threatened a proxy fight.

Talks of consolidation in the agricultural-sciences industry have heated up recently, with companies scrambling to adjust to pressure on lower prices for their commodities.

Last month, The Wall Street Journal reported that DuPont was discussing a potential combination of its agriculture division with seed giant Syngenta AG SYT -2.76 % , and separately exploring a potential agriculture deal with Dow. Monsanto Co. MON -1.59 % earlier this year abandoned a $46 billion bid for Syngenta amid resistance from the Swiss company.

UPS Tests a 3-D Printing Service Sept 18, 2015 By Lindsay Ellis and Laura Stevens

Delivery giant wants to know if new technology can help or hinder its

business

At its hub in Louisville, Ky., United Parcel Service Inc. UPS -2.29 % recently rolled out 100 industrial-grade 3-D printers to make everything from iPhone gizmos to airplane parts.

UPS wants to find out if 3-D printing centers could shorten supply chains and cut into its $58 billion-a-year transportation business—or give it a leg up in a potentially emerging market for local production and delivery.

For Atlanta-based UPS, the difference could be existential. It doesn’t want 3-D printing to disrupt its business the way the Internet pulled the rug out from overnight document deliveries more than a decade ago.

“Should we be threatened by it or should we endorse it?” asked Dave Barnes, UPS’s chief information officer, during a recent presentation to employees and customers. “We saw the capability of a logistics company to be challenged on one side but on the other be an enabler.”

Its 3-D project is run by an Atlanta startup called CloudDDM LLC that UPS invested in last year. The two companies plan to expand next year with another 900 printers, and are discussing opening similar print factories outside the U.S.

The technology slices a digital image of an object into thousands of layers, which printers then recreate one at a time in plastic, metal or other materials. It has attracted investments from companies like jet-engine maker General Electric Co. GE -2.17 % and appliance giant Whirlpool Corp. WHR -2.59 % So far, the 3-D printing industry hasn’t lived up to the hype, constrained by slow print speeds, small sizes and rapid technology change.

Sales in the 3-D printing industry have risen about 34% annually for

the past three years, and acquisitions in the industry have totaled more than $468 million in the past five years, according to data firm Dealogic.

UPS isn’t the only delivery company exploring the printing business. TNT Express TNTEY -2.59 % NV, a Dutch parcel-delivery company in the process of being acquired by FedEx, earlier this year started printing services at some locations across Germany and struck a partnership with a printing firm to expand options for customers. FedEx Corp. FDX -2.80 % says it is examining the field, while Amazon.com Inc. AMZN 0.26 % has filed a patent for a 3-D printing truck, aimed at creating an on-demand system printing goods from inside delivery vehicles.

Deutsche Post AG DPSGY -4.75 % ’s DHL recently looked at all products being shipped from Asia to Europe and concluded that only between 2% and 4% of those could be 3-D printed. It also asked employees to hand over objects for replication, and determined that only 10% of those objects—including a baby shoe and a foosball table player—could be reproduced with full functionality.

‘The quicker you can get a prototype back....the faster they can respond.’

— Michael Cukier , Whirlpool

“We see a risk, but not for the mass of products,” said Markus Kückelhaus, DHL’s 3-D expert who leads the company’s trend research team. While there may be opportunity in producing spare parts, Mr. Kückelhaus said printing speed and product liability remain deterrents. “We don’t need to be scared of this technology,” he said.

UPS expects more companies will migrate some production to 3-D printing from traditional manufacturing on an aggressive growth curve,

according to Rimas Kapeskas, head of UPS’s strategic enterprise fund. And UPS is also talking with customers about taking on a bigger role as a light manufacturer using 3-D printers.

Last year, UPS invested an undisclosed sum to take a minority stake in CloudDDM, which in May launched full operations of its printers at the delivery company’s supply chain campus, something the startup describes as a “critical element” of its business plan. It prints the items and UPS ships them out to customers for quick delivery.

UPS last year invested in Atlanta startup CloudDDM to bring 3-D printing to its Louisville, Ky., hub. Photo: Timothy D. Easley for

The Wall Street Journal

Late last month, the operation received an order for 40 mounting brackets for paper towel dispensers from a division of Georgia-Pacific LLC that makes dispensers, Dixie cups and cutlery. CloudDDM printed the mounts and UPS shipped them to a Georgia-Pacific engineer by the next morning. The brackets were slated for a month-long “stress test,” said Michael Dunn, senior vice president of innovation development for Georgia-Pacific.

Whirlpool turned to the operation recently when its own 3-D printers were all occupied. The maker of Maytag and KitchenAid products uses the printing method for prototypes of items like trays for refrigerators and venting systems for dryers, as a way to test parts on smaller scale.

“The quicker you can get a prototype back into the engineering team’s hands, the faster they can respond” to problems, said Michael Cukier, a Whirlpool principal engineer.

In Louisville, UPS has used its own service. The company needed to develop a replacement floor beam support bracket for its fleet of Airbus A300 aircraft, which are out-of-production.

The part helps containers filled with packages easily move on and off the plane. CloudDDM printers made the part within hours and walked it across the runway for testing in a UPS plane.

Buddy Holly Gets Chance to Pitch His Own Signature Eyewear, Sort of Sept 18, 2015 By Keach Hagey

Dead celebrities come back as holograms to endorse products, perform concerts; booze and cigarettes for

Billie Holiday?

A performance by a holographic image of the late Michael Jackson, powered by Pulse Evolution Corp.,

performed at the 2014 Billboard Music Awards in Las Vegas, touching off a bitter feud between Pulse and rival

Hologram USA. Photo: Kevin Winter/Billboard Awards 2014/Getty Images for DCP

Buddy Holly died too young to have a chance to become a pitchman for his signature eyewear. Now he may have a chance to do so from beyond the grave.

He is one of a rapidly growing list of dead celebrities, including Bing Crosby, Patsy Cline, Eazy-E, Liberace and, as of this month, Whitney Houston, whose estates have signed on to bring them back as holograms to perform live concerts and potentially endorse products.

The effort is the brainchild of Greek billionaire Alki David, best known for his streaming site FilmOn, who founded a company called Hologram USA last year after licensing the projection technology that

became famous in 2012 for helping create a performance by deceased rapper Tupac Shakur at the Coachella music festival.

Ever since then, he has been busily wooing dead stars’ estates. The first of this roster to meet the public will be jazz singer Billie Holiday, who died in 1959, but who will begin performing via hologram at the Apollo Theater later this year.

“The Billie Holiday show will probably end up using a lot of booze and cigarettes integrated into the show,” Mr. David said. “We can make her say anything we want.”

Anything, that is, that the estates agree to. Their deals give them ultimate control over the kinds of sponsors that can partake.

Jake Wisely, the chief executive of Bicycle Music, which manages Ms. Holiday’s estate, said the estate would maintain “the strictest possible standards of taste and quality” when deciding on brand integrations.

This week, Mr. David came to New York to pitch advertisers on the concept. “The market opportunity is much bigger than any other media of its type,” he says.

The opportunity is so big, in fact, that it has spawned a bitter feud between Mr. David and a rival contender in the world of holograms. The spat features dueling lawsuits, a restraining order and a heated competition to win over the estates of dead artists.

The competing company is run by John Textor, who used to run the visual-effects company that did the animation for Tupac’s hologram. That company went bankrupt and was sold, but Mr. Textor remained in the business of creating what he calls “virtual humans,” founding a new company, Pulse Evolution Corp.

Mr. Textor says that Mr. David is a mere “projectionist” without the animation chops to create convincing digital replicas. Mr. David disputes this, pointing to additional technology he has acquired, such as virtual camera tracking and virtual prosthetics technology, to help with the animation.

And while Mr. Textor’s roster of dead celebrities might be smaller than Mr. David’s, he says it is more valuable.

“He’s got Liberace and Patsy Cline,” Mr. Textor said. “I’ve got Michael Jackson, Elvis Presley and Marilyn Monroe. Who’s winning?”

Indeed it was Michael Jackson’s holographic performance at the Billboard Music Awards last fall that kicked off the feud.

Alki David, chief executive of Hologram USA, came to New York this week to pitch advertisers on the potential of using the holograms of dead celebrities to hawk products. Photo: Mark Lennihan/AP

A few days before the performance, Mr. David and his partners in Hologram USA—the inventor of the technique, Uwe Maass, and the company that holds the patent to it, MDH Hologram—sued Mr. Textor for patent infringement. Mr. Textor says he didn’t infringe on the patent. The companies have held settlement talks.

Mr. David isn’t a stranger to such battles. His streaming television service FilmOn was hit with a court injunction after broadcasters sued it for trying to offer live local TV channels. The fight is still wending its way through the courts.

Dead celebrities have been revived for commercials for years, usually

using archival footage—think Fred Astaire dancing with a Dirt Devil in 1997. But the technology to bring them back in apparent three dimensions for new performances before live audiences is relatively new.

Technically speaking, what Hologram USA is hawking aren’t really holograms, which are three-dimensional. Instead, Mr. David says, they are two-dimensional reflections projected on a clear, flexible surface using a twist on a 19th-century illusionist’s trick called “Pepper’s Ghost.”

To revive a celebrity, the image is created by fusing a computer-generated animation of the deceased star’s head onto a body double.

Some celebrities will be easier to turn into brand ambassadors than others. Bing Crosby, for example, was an avid pitchman during his life for everything from Chesterfield cigarettes to Kraft cheese, and has hundreds of recorded radio shows that could lend themselves to new sponsorship deals.

“If they called me up and said, ‘Do you have Bing Crosby talking about college football?’ Yeah, I’ve got about 15 recordings of that,” said Robert Bader, vice president of HLC Properties, Mr. Crosby’s estate.

Patsy Cline, by contrast, has no such trove—in part because her career was cut short at age 30 by a plane crash.

“Patsy didn’t talk a lot when she was performing,” said Greg Hall, business manager of Ms. Cline’s estate, so Hologram USA will likely have to create new speech using a voice profile.

Buddy Holly’s death by plane crash at 22 came even younger, so he has no history of hawking products during his lifetime. For years

Stephen Easley, the lawyer for Mr. Holly’s widow, Maria Elena Holly, turned down pitches from eyeglass manufacturers wanting to use his name or likeness. But now Mr. Easley said he has begun preliminary talks with some firms, in the wake of signing with Hologram USA to create a stage show for Buddy Holly it hopes to kick off at South by Southwest next year.

“It’s the perfect opportunity to take those brand tie-ins that we want to build for Buddy and get them off the ground,” he said.

At Hologram USA’s pitch meeting in New York Tuesday, advertisers like Afdhel Aziz, brand director for Absolut Vodka, peppered Mr. David with questions. He envisioned the possibility of bringing Andy Warhol, who created original art for Absolut ads before his death in 1987, back to holographic life.

Then he sidled up to the question on everybody’s mind: Do the estates have to approve this?

In explaining they did, Mr. David noted there were other opportunities out there in the public domain.

“Now, if you want to take William Shakespeare, or you want to take somebody who’s going to have a really tough time taking you to court, we can have him do shots.”

No Wonder: Twinkies Owner Adds Bread Sept 17, 2015 By Julie Jargon

Back on its feet, Hostess bakes up a basic that consumers thought it already made

Mr. Toler said Hostess surveys showed that consumers thought Hostess bread already existed even though there never was a Hostess-branded bread. “Anytime you can walk into a huge category with a new brand, it’s a huge opportunity,” he said.

The fresh bread business is dominated by companies such as Flowers Foods and Grupo Bimbo SAB, which use route drivers who both deliver the bread directly to stores and place it on shelves. Because convenience stores and drugstores don’t sell a lot of bread, it’s hard for drivers to justify making frequent trips to every outlet to swap fresh loaves for stale ones.

Hostess, under its new owners, dropped the direct-store delivery

model. It now ships products from its three bakeries in Indianapolis, Ind.; Columbus, Ga.; and Emporia, Kan., to a central warehouse in Chicago where they are bundled with each customer’s full order of Hostess products and sent to the retailer’s distribution center. At the retailer’s distribution center, Hostess products are loaded onto trucks with other items for delivery to individual stores, where store employees place them on shelves.

As efficient as that is, there are risks. “In the warehouse model of distribution, the manufacturer’s responsibility stops once the retailer takes control of the product,” and store employees have to make sure they aren’t stocking stale bread, said Jim Hertel, managing partner at retail consulting firm Willard Bishop LLC.

Mr. Toler said that for many stores, the Hostess bread is replacing frozen bread that store employees had to thaw. “Our solution is actually easier for the stores,” he said.

Mr. Toler, who became Hostess CEO in May 2014, is a food-industry veteran who was CEO of food-service supplier AdvancePierre Foods Inc. and, before that, president of Pinnacle Foods Group Inc. when C. Dean Metropoulos owned it and was CEO.

Hostess is also eyeing other new segments, such as brownies, “a $400 million category that you would think Hostess would be in,” Mr. Toler said. “There are things we can keep doing with this business. There also are questions around cookies, but we don’t want to go too far afield.”

Mr. Toler said he doesn’t want Hostess to stray too far from its roots as a maker of indulgent treats, either. Though consumers say they are seeking healthier products, they also want to treat themselves.

“We have a mindful eye into healthier trends and we’ll launch some whole grain muffins this fall, but our primary focus is on being an indulgent snack,” he said, referring to Hostess mini muffins, which come in such flavors as chocolate chip and birthday cake.

Hostess’s retail sales in the 52 weeks ended Aug. 9 totaled just over $1 billion, according to market research firm IRI. Mr. Toler wouldn’t disclose earnings, saying only that “We’re pleased with our profitability.”

Hostess still has a ways to go in expanding distribution. Hostess products are now carried in more than 100,000 convenience stores in the U.S., up from 50,000 previously, but short of its initial target of 110,000 by the end of 2013.

“We want to be sold everywhere a candy bar is sold, whether it’s an airport kiosk or a vending machine,” Mr. Toler said. (Candy bars are carried in about 120,000 convenience stores.) International expansion also is a priority, he said. Hostess is entering Mexico and Canada and broadening its reach in Europe and the Caribbean.

Mr. Toler said that while his focus now is on growing the business and expanding Hostess beyond snack cakes, “our plan would be to make it a public company. There is no timeline for that yet. We’ll know when the time is right.”

M&A Deal Activity on Pace for Record Year

Aug 10, 2015 By Dana Mattioli and Dan Strumpf

Companies hunting for growth drive volume

Global mergers and acquisitions are on pace this year to hit the highest level on record, thanks to a buying spree from companies on the hunt for growth.

Takeover-deal announcements would reach $4.58 trillion this year if the current pace of activity continues, according to data provider Dealogic. That tally would comfortably exceed the $4.29 trillion notched in 2007, a record year for deal making.

There is no assurance the intensity will continue. Deals tend to beget deals, and much depends on executives’ mind-set and their stomach for risk, both of which can quickly turn. Lately, chief executives have shown a swagger when it comes to deals. But that attitude could revert

to what deal makers call a “pencils down” mind-set as a result of, say, a sharp increase in interest rates, an economic downdraft or geopolitical instability.

Around this time eight years ago, deal activity was way ahead of where it is on the year now, surpassing $3 trillion compared with the $2.78 trillion of announced deals and offers so far this year. Yet volumes tapered off when the easy credit that fueled the deal market began to dry up in the summer of 2007 as the housing market cracked. The financial crisis followed.

For now, though, deal makers are in heady times. The tie-ups come as companies, after years of cost-cutting during the recession, search for ways to boost growth and find further cost savings in an overall sluggish economic environment.

Berkshire Hathaway Inc.’s $32 billion deal to buy industrial company Precision Castparts Corp., announced Monday, was the latest example of pursuit of growth through megadeal making. The takeover is the largest in Berkshire’s 50-year history and comes as Berkshire leader Warren Buffett has focused on big deals to help move the needle on growth at the $354 billion conglomerate.

Several trends are creating ripe deal-making conditions, bankers, analysts and investors say. The slowing pace of profit and revenue growth is one.

Corporate bottom lines have been squeezed this year by the soaring dollar—which makes it harder for companies to compete overseas—as well as the uneven economy and falling commodity prices.

Profit growth among companies in the S&P 500 is on track to fall 1% in the second quarter, after rising 0.9% in the first quarter, according to FactSet. Sales growth has been down in the first two quarters.

The trends mark a sharp slowdown from the years following the financial crisis, when profit and sales growth picked up speed. For all of 2014, S&P 500 company profit grew at a more brisk 5.5%, according to FactSet.

The shift is leaving investors starved for companies that can show growth. Deal making, investors say, is one way to deliver it.

“You’ve got very, very limited [revenue] growth for a lot of companies out there,” said Michael Scanlon, portfolio manager at John Hancock Asset Management, which oversees $302 billion. “The fact that they can take this cash that’s earning nothing and go out and buy

something—it does help to show growth.”

Merger activity, he said, has become a popular topic in meetings with management. “Nobody wants to be that company that’s being left out.”

At the same time, the economy isn’t in free fall, which gives chief executives confidence to move ahead with acquisitions with a bit less nervousness over whether they are taking on more than they can handle. Deals can be risky, both completing them amid potential shareholder or regulatory resistance, and making them pay off.

“A low-growth macroeconomic environment, coupled with opportunities to grow by adding new business lines and customers, is driving M&A,” said Greg Weinberger, co-head of global M&A at Credit Suisse Group AG. “We are on track to match or beat the 2007 high.”

Shareholders have also been rewarding some, though not all, acquirers, a phenomenon that doesn’t go unnoticed among chief executives. Relatively cheap debt, high stock prices and hefty coffers of cash on company balance sheets have provided the tools for takeovers.

Also, some say, a potential rise in interest rates has executives eager to pounce if there is a target they have been eyeing.

Borrowing costs are widely expected to creep higher in the months and years ahead as the Federal Reserve raises short-term rates as anticipated. After years of near-zero interest rates, investors widely expect the central bank to raise rates as soon as September or December. This year, the yield on the 10-year Treasury, a widely cited benchmark for borrowing costs, has risen 0.065 point to 2.238%.

“Often the economics are quite attractive because you’re either using cash that’s earning nothing, or debt that” isn’t expensive, said Brian Angerame, a portfolio manager at ClearBridge Investments, which has

$117 billion in assets under management. “You also feel this creeping sense of urgency in the back of your mind because you fear that you might not be able to get interest rates this low for some period of time.”

Mr. Angerame’s funds have benefited from deal making. One stock in his portfolio is Humana Inc., which has agreed to be acquired by Aetna Inc. for $34.1 billion in cash and stock. Humana shares have risen 30% this year.

In 2007, takeover activity slowed when credit markets seized up thanks to mortgage-related woes. The turmoil led to a slowdown in leveraged buyouts, takeovers done by financiers with a heavy dollop of borrowed money, which represented a big chunk of deals in the last boom. Deal activity for years remained suppressed as companies shied away from spending and focused on hoarding cash.

Google Creates Parent Company Called Alphabet in Restructuring

Aug 10, 2015 By Alistair Barr and Rolfe Winkler

Sundar Pichai will be CEO of Google as Larry Page will head parent

company Alphabet; Sergey Brin to be Alphabet president

Google Inc. GOOG 4.27 % unveiled a sweeping reorganization that separates its highly profitable search and advertising business from fledgling efforts in an array of so-called moonshots.

Google said Monday it had created a holding company, Alphabet Inc., that will manage each of its growing cast of businesses, including those building robots and self-driving cars, helping to cure disease,

developing nanoparticles and extending Internet connectivity via balloons.

Alphabet will be run by Google’s current leaders, including Chief Executive Larry Page, co-founder Sergey Brin and Chief Financial Officer Ruth Porat.

Alphabet’s new Google subsidiary—including the search business, YouTube and the Android and Chrome operating systems—will be led by Sundar Pichai, who has been in charge of product and engineering for Google’s Internet businesses.

Those businesses generated nearly all of Google’s $66 billion in revenue last year. Advertising, primarily on search and on YouTube, accounted for 89%. Google’s next-biggest source of revenue was sales of apps, music and movies through the Play store on Android phones.

Google said each Alphabet subsidiary would have its own CEO, reporting to Mr. Page, a structure similar to Warren Buffett ’s Berkshire Hathaway Inc. BRK.A -0.37 % In a meeting with investors last

December, Mr. Page said he looks to Berkshire Hathaway as a model for running a large, complex company, according to people who were at the meeting.

The move reflects the co-founders’ view that the company, which is now worth some $445 billion, has become more complex to manage as it pursues potentially big new businesses in industries far from Google’s search-engine roots.

“Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related,” Mr. Page wrote in a blog post. Google declined to make any executives available to discuss the moves.

Beginning with the fourth quarter, Google said it would report separate financial results for the core Google business and the remaining Alphabet businesses. The move will offer investors more insight into Google’s core search and advertising business. Investors have been uneasy about Google’s spending on its various moonshots.

“It was getting harder and harder to hide the costs of some of the company’s projects,” particularly since some were bound to fail, said one former Google executive. “It’s easier to take the core business and run it like a Fortune 500 company,” keeping the more speculative enterprises separate.

Ultimately, that could allow Google to spin off one or more of the experimental businesses, said Jan Dawson, an analyst with Jackdaw Research.

Google said its existing shares would convert to Alphabet shares and trade under its existing stock tickers, GOOG and GOOGL. Alphabet will remain incorporated in Delaware, Google said in a securities filing. Its website is at abc.xyz.

Google unveiled the new structure after U.S. markets closed, and its

shares jumped 6.2% in late trading. The stock had closed at $633.73 Monday, down 0.3% in 4 p.m. trading.

Google shares had lagged behind other technology companies for most of the year, until the company reported better-than-expected second-quarter results and signaled plans to rein in spending on ancillary projects.

“The whole point is presumably to say to investors that we hear your calls for more transparency and we’ll provide it,” said Brian Wieser, an analyst with Pivotal Research. But, he cautioned, “just because they break out the data doesn’t mean they’ll stop making investments in things that are so far removed from the core business.”

Google has jumped into dozens of new businesses in recent years, but it remains primarily an advertising company, generating most of its revenue and nearly all of its profit when people click ads in search results. Researcher eMarketer estimates that Google ends up with one in 10 dollars spent on advertising globally, about $53 billion this year after paying back its partners.

The move raises the profile of Mr. Pichai, 43 years old, who will become chief executive of the new Google Inc., Alphabet’s search, advertising and mobile unit. Mr. Pichai has been effectively running those businesses for a year.

“Sundar has been saying the things I would have said (and sometimes better!) for quite some time now,” Mr. Page wrote in his blog post.

At the same time, Google said Chief Business Officer Omid Kordestani would become an adviser to Alphabet and Google. Mr. Kordestani, Google’s employee No. 11, left in 2009 and returned in 2014 after the departure of Nikesh Arora, its chief business officer.

Google said the chief business officer role would be eliminated. In Mr. Kordestani’s stead, Philipp Schindler will run sales and Daniel Alegre will oversee partnerships, the company said.

The main Google subsidiary will include search, advertising, maps, YouTube, Android and the data centers and networks that run all these Web businesses.

Non-Google units will include Nest, the connected-home business run by Tony Fadell ; Fiber, Google’s fast Internet service; Calico, the health research lab headed by Art Levinson ; Google X, the company’s research lab that pursues long-term risky projects like the self-driving car; Google Ventures, its venture-capital arm; Google Capital, a late-stage investment unit; and Sidewalk, a recently formed urban technology project headed by Dan Doctoroff.

Mr. Dawson, the Jackdaw Research analyst, said shareholders likely will gain additional insight into the profitability of the company’s various business units. “The bottom line doesn’t change, but at least you know what the moving parts are,” he said.

Dole and Other Companies Sour on Delaware as Corporate Haven

Aug 2, 2015 By Liz Hoffman

Most popular state for corporate registrations has challengers who say

it doesn’t offer enough protections against shareholder lawsuits

Dole Food Co. has its pick of ports along the East Coast to drop off its bananas and pineapples from Costa Rica and Honduras. But since the 1980s, Wilmington, Del., has been a regular unloading point. In 2001, Dole went a step further, moving its legal home to Delaware from Hawaii.

Like thousands of U.S. companies, Dole was attracted by the state’s business-friendly reputation: Managers enjoy broad latitude in day-to-day operations, from corporate spending to buyouts. Firms are shielded by tough antitakeover laws. And special business courts, widely considered the most sophisticated in the nation, have over the decades blessed new corporate defenses and set clear rules for the rough-and-tumble merger world.

Incorporating in the state was “a no-brainer,” said Michael Carter, Dole’s former chief operating officer. “We made a conscious decision to move there, and, as a show of good faith, we brought our business with us.”

Now, that enthusiasm is souring. Dole is facing potentially costly litigation from shareholders who sued the fruit giant after it was sold to its chief executive, David Murdock in 2013. The lawsuits, filed in Delaware’s Chancery Court, argue that the company was sold too cheaply and seek damages that could stretch into the hundreds of millions of dollars.

Dole is one of several companies that say the state has become less hospitable toward business. Among their gripes: a growing tide of shareholder litigation, which some feel the state hasn’t done enough to curb. One new measure bars companies from shifting their legal fees to shareholders who sue and lose—a boon to would-be plaintiffs.

“We moved to Delaware because of what we felt was a balanced corporate environment. We’re now seeing that trending the wrong way,” said Mr. Carter, who retired from Dole in April. “That’s troubling to us and, I think, should be troubling to others.” Dole’s general counsel, Genevieve Kelly, echoed the sentiment in a separate interview.

Attorneys on the other side of the fence see things differently. “Corporate America is playing the boy who cried wolf,” said Mark Lebovitch, a lawyer who sues companies on behalf of investors. He said pro-shareholder rulings are still rare in Delaware and that the threat of lawsuits keeps corporate managers honest. “The republic is not crumbling,” said Mr. Lebovitch, who has successfully represented plaintiffs in class-action suits against Delaware companies like energy giant El Paso Corp., among others.

“Delaware has long been a preferred place of incorporation because we have a legal community and court system with unparalleled experience in corporate law matters,” said a spokesman for Delaware Gov. Jack Markell.

Executives of Dole, DuPont Co., Ancestry.com Inc. and other Delaware companies have publicly and privately appealed to state officials to find ways to curb lawsuits. Tensions brewed over a recent bill that could encourage shareholder suits and limit companies’ ability to weed out weaker ones. Its passage last month renewed grumbling among some general counsels, who talk of leaving the state for more management-friendly pastures.

The pushback highlights an issue in this small state, where registered businesses outnumber people: How not to bite the hand that feeds it.

Delaware is the legal home of 54% of public companies, according to the latest annual-report filings. By incorporating in the state, they must adhere to Delaware’s corporate laws, regardless of the location of their operations or physical headquarters. The next most-popular state for registering is Nevada, with about 14%; then Maryland, which has wooed real-estate trust companies, with 6%.

Of U.S. firms that have gone public in the past two years, about 85% incorporated in Delaware, according to FactSet. That market share has actually risen over the past decade.

Corporate fees paid to the state are projected to total more than $1 billion for the current fiscal year—that is 26% of Delaware’s budget, up from about $665 million, or 21%, a decade ago.

Litigation is also big business in Delaware, whose business court hears hundreds of cases a year. Filings increased 20% between 2003 and 2012, according to state data, bringing litigation filing fees and millions of dollars of aggregate fees to a small group of local law firms on either side.

Alongside these companies hums a sizable service economy—from local law firms to local agents who process paperwork for out-of-town corporations to Wilmington’s Hotel du Pont. Serving strip steaks and wine from a 3,000-bottle cellar, the hotel is a favorite of corporate executives and advisers in town on court business.

But as it caters to companies, the state must also balance the desires of shareholders.

“Delaware has built its brand and its economy on courting companies. That has always meant walking a fine line between being friendly enough that management teams want to be there, but not so friendly that it starts to look like bias,” said Lawrence Hamermesh, who

teaches corporate law at Widener University outside Wilmington. “That line has gotten harder to walk.”

Few expect a mass corporate exodus. Legal moves require approval from shareholders, whose votes can be tough to gather. And bankers shepherding initial public offerings to market often push for Delaware, saying big investors still prefer to buy shares in companies based in Delaware, where they understand the rules of play.

“It’s saber-rattling more than anything else,” said Edward Rock, a corporate-law expert at the University of Pennsylvania. “Is anyone going to leave? Probably not. But it is the sort of thing companies do from time to time when Delaware moves in a direction they’re not wild about.”

Still, even some of Delaware’s biggest boosters are questioning the long-held wisdom of putting down roots in the state. William B. Chandler III spent 14 years moderating corporate disputes as chief judge of the state’s Chancery Court and still serves as a trustee of the University of Delaware, his alma mater.

Now in private practice, he says clients are increasingly frustrated by Delaware’s legal landscape.

“Some of them are saying, ‘Why are we in Delaware in the first place?’” Mr. Chandler said.

Dole has proposed legislation to tighten state laws governing how and when shareholders can sue. Last fall, during a meeting with Gov. Markell, Mr. Murdock threatened to move Dole out of Delaware, potentially taking future port business with him, according to people familiar with the meeting.

Other states are angling for Delaware’s business. Michigan and Texas have moved to establish separate business courts with judges steeped in corporate-law expertise.

Nevada, corporate home to companies including Dish Network Corp. and retailer AutoZone Inc., touts its lower corporate taxes. Oklahoma, meanwhile, last year passed a law meant to protect boards from some shareholders lawsuits—including the sort now flourishing in Delaware. The law requires plaintiffs in these cases to pay both sides’ legal costs if they lose—the same hitch that the new Delaware law bans.

“You look at Delaware and say, ‘why does it have to be that way’? We have 50 states,” said state Rep. Jon Echols, the Oklahoma Republican who co-sponsored that state’s bill.

Delaware’s leading role dates back more than a century. New Jersey and New York had long dominated the emerging market for corporate charters. But in 1899, Delaware enacted one of the country’s most lenient incorporation laws, and, aided by then-governor Woodrow Wilson’s trustbusting crackdown in New Jersey, began winning business.

“Delaware figured out early on that if you made it easy for corporations to do what they wanted to do, they would come,” said J. Robert Brown, a corporate-law professor at the University of Denver.

State officials have fiercely protected what’s known locally as “the franchise.” Senior judges for the Delaware courts went to Washington to meet with federal officials to ensure the 2010 Dodd-Frank financial overhaul didn’t encroach on state-law corporate governance matters, according to people familiar with matter.

Still, the state has seen a sharp rise in hedge funds suing to squeeze more money from corporate takeovers. A record 40 cases were brought last year and already 32 have been filed this year, with claims totaling more than $2 billion in face value, up from $129 million three years ago, according to court filings.

Hedge funds including Fortress Investment Group LLC and Third Point LLC are among those challenging buyouts of Dole, retailer PetSmart Inc. and others. Investors say the threat of litigation motivates buyers

to pay a fair price, benefiting all shareholders. Critics say that so-called appraisal suits, which dispute the price paid, are encouraged by a Delaware law requiring companies to pay interest on the value of all claims, no matter the outcome. That allows the funds, who forgo the merger payout while the cases are pending, to profit even if they lose.

Earlier this year, Dole, working with lobbyists, drafted a bill that would cut three percentage points off an interest rate currently set at about 5.75%, according to documents viewed by the Journal and people familiar with the matter. The bill was never introduced, although lawmakers have promised to consider the measure next year.

Corporate executives and advisers are closely watching the Dole case. The difference between the $13.50-a-share deal price and the $25.27 that investors are seeking could cost both the company and Mr. Murdock hundreds of millions.

“These proceedings amount to no more than a private tax on companies,” William Stern, chief legal officer of family-tree website Ancestry.com, which faced a large appraisal lawsuit tied to its 2012 sale, wrote in an April letter to lawmakers. “Frankly, it is an outrage.”

Appraisal lawsuits are part of an overall rise in shareholder litigation challenging corporate mergers. Lawsuits followed 93% of deals last year, up from 44% in 2007, according to Cornerstone Research. Other shareholder requests, such as those seeking access to corporate books and records, have surged, too.

Tensions recently burst to the surface over a new state law that would steer more of this litigation into Delaware’s own courts and limit companies’ ability to implement bylaws that would allow them to weed out weaker cases.

The law requires Delaware companies to allow shareholder lawsuits to be heard in Delaware court. It would also bar companies from adopting bylaws that would shift their legal fees to shareholders who sue and lose.

First Citizens BancShares Inc., a Delaware-registered bank, last year pushed for the right to have any shareholder suit against it heard in North Carolina, where its headquarters and most of its banks are located.

Chief Legal Officer Barry Harris said the bank, is “re-evaluating [its] relationship with Delaware,” including considering reincorporating in North Carolina, its former legal home.

“We value being a Delaware corporate citizen,” said Mr. Harris. “But it’s not the be-all, end-all.”