• Stock keeps closing below threshold to convert preferreds
  • Buffett would receive lower dividends if conversion occurs

Dow Chemical Co.’s shares probably have been pushed down by investors betting against the stock -- and it’s benefiting billionaire Warren Buffett, a Yale University professor said.

The shares have closed above $53.72 just seven times between April 1, 2014, and Aug. 29, while ending just below that threshold 54 times, according to an analysis by Yair Listokin, a Yale Law School professor specializing in contracts. The stock routinely exceeded $53.72 intraday before falling below that level by session’s end, he said.

That closing price is key. If the shares end above $53.72 for 20 days out of 30, Dow would have the option to convert Buffett’s $3 billion preferred stake, paying $255 million of dividends annually into common stock with reduced payouts. Buffett’s Berkshire Hathaway Inc. got the preferred stake for helping to finance Dow’s 2009 takeover of Rohm & Haas Co. The acquisition also was helped by Kuwait’s sovereign wealth fund, which received $1 billion of the securities.

"It does seem on days when the price approaches that number, probably some short selling gets triggered," Listokin said by telephone Thursday. "This is not happening by chance," he said, putting the odds of happenstance at less than 1 in 1,000.

Short Sellers

It’s unclear who is behind the short selling, he said. While a prohibition on shorting Dow common shares by preferred holders expired in April 2014, it would be unwise for them to do so excessively, Listokin said. That’s because U.S. contracts have an implied covenant of good faith that prevents one party from using shifty means to avoid obligations, he said.

Buffett didn’t respond to a request for comment about the professor’s analysis or whether Berkshire has sold Dow’s shares short.

"We have no knowledge or facts to support the position that it is directly Berkshire Hathaway" attempting to keep the shares below the conversion price, Rachelle Schikorra, a spokeswoman for Dow, said Thursday in an e-mail.

Dow rose 0.3 percent to $53.80 at the close in New York. That marks the third day in four they have breached the $53.72 threshold at day’s end. The Wall Street Journal first reported on the Yale professor’s analysis on Wednesday and the possible manipulation of the share price last week.

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