Activist Daniel Loeb spurs Dow Chemical chief to offload assets

Mr Loeb took a large stake this year and criticised the firm for hanging on to clunky, low-margin bulk chemicals businesses.

Although Dow’s shares have risen eightfold from their worst position after the financial crisis, and closed on Friday at US$50.16, up about $10 on the same time last year, the company still came under pressure from the activist investor Daniel Loeb.

Mr Loeb took a large stake this year and criticised the firm for hanging on to clunky, low-margin bulk chemicals businesses.

But the chief executive Andrew Liveris has agreed to carve out Dow’s chlorine business – upon which it was founded in 1897 – and sell it to a suitable buyer. He recently said Dow plans to sell businesses worth between $4.5 billion and $6bn by the end of next year (including the sale of Angus Chemical in the US, which has already been agreed).

In November Dow raised its asset sale target by as much as 42 per cent to $8.5bn and increased its share buyback plan by $5bn, as it looked to thwart Mr Loeb’s push to split the company.

The increased buyback plan brings Dow’s total share repurchase programme to $9.5bn.

The company also raised its quarterly dividend to 42 cents per share from 37 cents.

Dow and its rival Dupont are facing pressure from investors to raise shareholder returns by divesting businesses that are exposed to swings in commodity prices.

Dow, the biggest US chemicals company by sales, said it now expects to raise $7bn to $8.5bn from divestitures by mid-2016.

Dow has also put the speciality chemical unit AgroFresh and its sodium borohydride business on the block. It has also earmarked its epoxy business and some chlorine and derivatives assets for sale.

The company, which has narrowed its focus to packaging, electronics and agriculture, also re-organised its reporting units into five divisions from six. The company said the new structure would help it extract maximum value from its integrated structure.

In late November Dow and Mr Loeb’s investment vehicle, Third Point, reached a deal to give Third Point three board starts from the beginning of next year, in return for which Third Point undertook certain “standstill” commitments. Third Point currently owns about 2.3 per cent of the company.

Mr Loeb has asked Dow to separate its commoditised raw material units from speciality chemicals businesses, but the company has said that keeping its units together helps lower costs.

Dow, which has been paying cash dividends every quarter since 1912, said the new dividend would be payable on January 30 to shareholders on record as of December 31.

The company also said in November it planned to cut stakes in all of its Kuwait joint ventures to release money “for other strategic purposes, including shareholder remuneration”, although the new level of equity is being kept a secret – Mr Al Moosa says even he does not know what it is. Will Dow eventually sell its Kuwait stake altogether?

“The Kuwait partnership has been very good for Dow,” says the company’s local chief executive Moosa Al Moosa.

“I wouldn’t say it’s a political [decision to keep the stake], I would say our partnership in Kuwait has been successful for Dow and we’ve talked about some of the higher-end packaging areas we want to invest in there.”

* with Reuters

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Published: December 8, 2014 04:00 AM

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