Dow Chemical Boosts Divestiture Target by $1.5 Billion

Dow Chemical Co., resisting calls from Dan Loeb’s Third Point LLC to break itself in two, increased its divestiture target by at least $1.5 billion to include smaller, slow growing units.

The largest U.S. chemical maker plans to sell assets worth $4.5 billion to $6 billion by the end of 2015, up from an Oct. 24 target of $3 billion to $4 billion, Chairman and Chief Executive Officer Andrew Liveris said today on a webcast. The expanded target adds “nice little jewel businesses” with combined earnings before interest, taxes, depreciation and amortization of $300 million, he said.

Loeb, an activist investor with Dow as his top holding, has said this year that Dow could add billions of dollars to Ebitda by spinning off commodity chemicals and plastics businesses. Liveris said today that integrating commodities with higher-value products is worth as much as $2.5 billion, and new projects and divestitures will accelerate growth.

Liveris, who is in the process of selling the chlorine derivatives business, including epoxy and vinyl, declined to name the units added to the divestiture list while saying they stand a better chance of growing with a different owner. Proceeds will be applied to the balance sheet as Dow doesn’t plan on buying “anything of size,” Liveris said.

Agriculture Unit

Liveris also suggested that Dow AgroSciences, an Indianapolis-based unit that makes pesticides and genetically modified seeds, may be a divestiture candidate in a year or two.

“We’ve never said Dow AgroSciences is not a potential transactionable property,” Liveris said. “Waiting for the right moment to maximize that value and doing it in a way that actually has shareholders’ benefit is our whole drive.”

Dow Chemical rose 0.5 percent to $49.91 at 11:50 a.m. in New York. The shares have increased 12 percent this year.

After Third Point announced its stake in January, Dow tripled its share buyback program to $4.5 billion and raised its dividend. About $1 billion will be repurchased by the end of March, Liveris said today.

Dow’s U.S. earnings will be “slow” in the first quarter because an unusually cold winter affected sales, Liveris said. He said earnings this year will be driven by cost cuts amid “slow growth.” By next year, the ethylene industry will be entering a cyclical peak, he said.

Sadara, Dow’s joint venture with Saudi Arabian Oil Co., is 45 percent constructed with 44,000 workers on site and will start its first units in late 2015, Liveris said. A propylene dehydrogenation unit in Texas that is 20 percent finished, also will start next year, he said. U.S. and Saudi projects will add $3 billion to Ebitda after a new ethylene unit starts in 2017, he said.

Dow will achieve Ebitda of $10 billion in “the near term,” Liveris said, repeating a forecast first made in 2010. That compares with an average $8.1 billion in Ebitda in the past three years, he said.