Jan. 21 (Bloomberg) -- Billionaire Daniel Loeb wants Dow Chemical Co. to spin off its petrochemicals unit, expects T-Mobile US Inc. to merge with Sprint Corp., and thinks the U.S. Government will exit Ally Financial Inc. in an initial public offering.
Loeb’s Third Point LLC disclosed stakes in all three companies in a year-end letter to investors today. The position in Dow Chemical is the latest activist effort by the fund which has also recently urged changes at Sony Corp. and Sotheby’s. New York-based Third Point LLC returned about 26 percent last year, according to the letter.
While most of Third Point’s investments aren’t activist those campaigns attract the most attention. With Dow Chemical, the firm’s largest current investment, Loeb is pushing Chairman and Chief Executive Officer Andrew Liveris to hire advisers for a strategic review of the benefits of a petrochemical spin off and to boost its share buybacks, amid criticism of the company’s share performance.
“We are concentrating on identifying companies that have been under-earning relative to normalized earnings power,” Loeb said in the letter. “We believe our portfolio is well-positioned with a number of event-driven situations, and we expect corporate activity to create compelling opportunities for our investment style.”
Dow Chemical’s shares have lagged behind competitors that are more focused on petrochemicals, such as LyondellBasell Industries NV and Westlake Chemical Co., as new drilling methods in U.S. shale formations unlock an abundance of natural gas. Activist investors amass equity stakes and try to force management and boards to make changes that boost shares and investor returns.
While Third Point has been talking with Dow Chemical since late last year, those discussions haven’t included the CEO or board members of the chemical company, said a person with knowledge of the matter. The stake has a value of about $1.3 billion, the person said, asking not to be identified as the information is private. Dow Chemical rose 6.6 percent today, giving the company a market value of about $55.7 billion.
Third Point also established a stake in T-Mobile in the carrier’s November secondary offering, positioning Loeb on both sides of a potential merger with Sprint. His firm has invested in SoftBank Corp., the Japanese wireless carrier that owns Sprint, and Loeb says in the letter that a merger could navigate antitrust hurdles by creating a stronger competitor to AT&T Inc. and Verizon Communications Inc. T-Mobile gained 2 percent today to $33.17 a share.
The firm has also become one of Ally Financial’s largest shareholders, amassing a 9.5 percent stake over the past six months in the Detroit-based auto lender through private transactions, the letter said. Last week, the U.S. Treasury Department sold about $3 billion of Ally common stock, reducing taxpayers’ stake to 37 percent, and “will be in a position to exit TARP with full government repayment during 2014, most likely through an IPO,” Loeb said in the letter.
The Ally shares aren’t publicly traded. The lender could achieve a multiple higher than one times book value, “well above the valuation of our purchase levels,” according to the letter.
Loeb last year took activist stakes in new targets including Sony, where he called for a partial sale of the Japanese company’s entertainment unit, CF Industries Holdings Inc., where he agitated for a larger dividend, and Sotheby’s, where he pushed for new leadership and more efficient operations. He has taken non-activist, or passive, stakes in companies including Nokia Oyj and FedEx Corp.
Sony CEO Kazuo Hirai in August rejected Loeb’s push and instead pledged cost cuts and greater transparency.
“Progress on Sony’s growth vectors, while encouraging, needs to be matched by a serious effort to restructure the PC and TV businesses as well as more concerted efforts to realize Entertainment’s value,” Loeb said in today’s letter. “Japanese investors reacted favorably to management teams who took bold restructuring action in 2013, and the market is looking for Sony to pursue a similar path.”
Third Point also reported increased holdings in Intrexon Corp., the synthetic biology services provider that the fund had invested in privately since 2011. Intrexon’s shares have more than doubled since an August IPO.
In July, Loeb sold most of his stake in Yahoo! Inc. back to the company and left the board after an almost two-year effort to revamp the Web portal. Loeb became a director in May 2012 and helped bring in Google Inc. executive Marissa Mayer as CEO.
With the July sale of 40 million shares, Third Point made a 129 percent return on its initial stake. That doesn’t include gains on the shares it still owns or sold before July.
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