Q&A: Dow Chemical's Andrew Liveris on Chlorine, DuPont, and BuffettBy
What chief executive officer wants to be a commodity player? Andrew Liveris of Dow Chemical certainly doesn’t. He announced plans on Monday to shed most of Dow’s century-old chlorine operations to focus on higher-margin products and technologies. Ellen Kullman, CEO of rival DuPont, announced a similar move in October.
Liveris spoke with Bloomberg Businessweek‘s Diane Brady about the move, and other topics. An edited excerpt of their conversation:
Even the term “commodity chemicals” feels like a weight around your neck. Why get out now?
Timing, of course, matters. We believe these assets are quite well strategically positioned because of low-cost energy in the United States. They just don’t fit where we’re going as a high-IP-, high-tech- type company. The world of commodity chemicals, while it makes money, is an up-and-down cycle.
If not for shale gas, would you have held on to this for a bit longer?
Yes. If a business is attractive to others and not attractive to you, you do what we announced today. If it’s unattractive to both, you’re not in a very good situation. You have to start shutting down and writing off. We’ve shut down some of these assets—in Canada, the U.S. Gulf Coast. We know there’s interest.
What will stay, and what’s the most likely way to shed the rest?
Giving that information away is not good for the transaction. We have a good sense of the most likely output. That three- to four-billion-dollar target is the sum of those possibilities. Joint ventures, mergers, are part of that. We’ve not put the full value as if it’s 100 percent sold. We don’t think that’s the likely outcome.
I saw a headline about a possible name change. Really?
I was just responding to a question. We’ve spent a lot of time branding Dow and not Dow Chemical. I frankly don’t mind that idea being out there. It’s good fodder for people to realize we are different, we have moved.
There are a lot of comparisons today with DuPont, both in terms of today’s news and the stock price.
The two of us are very similar. These are point-in-time comparisons. DuPont is also transforming. It started as explosives 200 years ago, then went through the chemical phase, and is now in the biology phase. The playbook is not all that dissimilar. The portfolio is different. Our three pieces are polymer science, materials science, and agricultural science. They have a heavy weighting on biological science.
So has the wind been more at their back?
Their ag business is on a surer footing, but they bought that in 1997, took a write-off, and rebuilt it. Monsanto was the same. Dow was always the bridesmaid and not the bride at the agricultural consolidation. We didn’t buy. But we’re the little engine that could. We’re growing organically.
DuPont has also had to deal with an activist investor. You’ve dodged that bullet.
If you saw my calendar, you’d see how much time I spend with shareholders. If an activist came to us, we’d talk to him. We’re willing to do whatever is best for shareholders.
What about Warren Buffett? You’ve talked about wanting to “liberate” the expense of his preferred shares.
We do see them as high-priced instruments on the balance sheet. They served a great purpose at a time when there was no liquidity. That purpose having been served, he’s shown that he’s a willing negotiator when it comes time to monetize. He’s done it at Goldman Sachs. He’s done it at GE. He’s an incredibly smart guy. He likes those preferreds. We don’t have to do any more debt reduction. What we have to do is take more costs off the balance sheet, take off expense, and liberate it to the bottom line. So it’s a priority.
Do you talk to him?
We talk about once a quarter and have a wonderful relationship. I think the man, like all of us, is interested in seeing the equity price rise. It’s worth the ride up for him, so he’ll stay. The fact that he came in with us to do the Rohm & Haas deal was a statement. The headline value and the reality value.
You spend a lot of time in Washington with the Business Roundtable. What’s happening there?
The priorities are around tax reform and the fiscal deficit. Business remains skeptical that there’s a solution. Kicking the can down the road doesn’t work. The situation with the House is clear, in terms of the Tea Party Right holding the Speaker hostage. They’re not going to get the votes in the Senate. Put Obamacare aside. The real issue is how to put the economics of uncertainty to bed. Playing political fodder with the economy is something we’re frustrated with. That’s why there’s so much cash on the balance sheets.
The conventional wisdom is that what happens in Washington is neutral; the economy is growing, anyway.
China has slowed and is being remade—to what, we’re waiting to see. The emerging world has slowed. We could write a whole book on Europe; in Germany, there’s a glimmer of hope. This economy has the hand. There’s no central ground in Washington. There’s jockeying for the next election. I think the president wants to put a legacy in place. This has been an unhappy period for him. Tax, fiscal deficit, immigration. If the president can get going on any of those, I think that will reverse all the views around business friendliness.
What will we be talking about this time next year? Will you have completed the shift announced today?
Nine months of work. Lots of expressions of interest. The energy situation I mentioned. The 12 to 24 months is the outer limit.
Anything else on your radar screen?
The Dow Chemical Company is a very big proponent of free trade and is for [liquefied natural gas] exports—but balanced, so we can value-add them in this country to create jobs. I just want to dispel any myths.