Dow Chemical Co. (DOW) Chairman and Chief Executive Officer Andrew Liveris should “embrace” the fact that he runs one of the world’s biggest commodity chemical businesses instead of pursuing a strategy that reduces earnings by $2.5 billion a year, activist investor Third Point LLC said.
A review of Dow’s current model, which integrates commodity chemicals such as propylene with value-added products such as paint ingredients, is “crucial to becoming a best-in-class, low-cost petrochemical operator,” Third Point said today. The hedge fund commented in its first-quarter letter to investors, a copy of which was obtained by Bloomberg.
Third Point, founded and led by Daniel Loeb, first reported its stake in Midland, Michigan-based Dow in January, calling for the spinoff of commodity-chemical assets as a separate company to realize greater shareholder value.
There was no mention of a breakup in today’s letter. Rather, Third Point said Dow could boost earnings by more than $2.5 billion with a greater focus on maximizing returns from commodity products, similar to the model pursued by competitor LyondellBasell Industries NV.
“We have urged management to embrace that it is running one of the world’s largest commodity petrochemical businesses, which has historically been a challenge,” Third Point said.
Liveris said in January that the sale of units such as polystyrene plastic made it “honestly impossible to think of Dow as a petrochemical company anymore.” In March, he defended Dow’s integration model, saying it saves as much as $2.5 billion annually.
Louise Adhikari, a Dow spokeswoman, declined to comment on the Third Point letter.
The hedge fund said increased transparency in how Dow transfers costs between units and more clearly delineating the petrochemical businesses from specialty units would help investors better assess where value is lost.
“After a decade of underperformance, shareholders deserve greater transparency and a comprehensive reassessment of Dow’s strategy,” Third Point said.
The fund applauded some moves made by Dow since January, including an increase in its dividend, planning $4.5 billion of share repurchases and expanding a program to divest underperforming assets.
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