Liveris Becomes Dow Chemical's Activist With Flurry of Activity

  • Shares rise as it reviews agriculture unit, boosts buybacks
  • Dan Loeb's hedge fund is Dow's sixth-largest shareholder

Almost two years after Dow Chemical Co. first attracted the attention of one of Wall Street’s best-known activist shareholders, Chief Executive Officer Andrew Liveris is himself resembling an outside agitator after unveiling a raft of measures to reshape the company.

Andrew Liveris

Andrew Liveris, president and chief executive officer of Dow Chemical.

Photographer: Chris Ratcliffe/Bloomberg

Liveris on Thursday said Dow is considering selling its agriculture business and is in talks to buy out Corning Inc.’s share in a U.S. joint venture. Dow also plans to scale back its investment in two Kuwaiti ventures, while rewarding shareholders with more stock buybacks and a higher dividend.

"Dow has been its own best activist for some time," John Roberts, a New York-based analyst at UBS AG who recommends buying Dow stock, said by phone Thursday. "There is a steady stream of progress being made."

Liveris, 61, who will mark his 11th anniversary as CEO next week, is pushing ahead to reshape Dow into a producer of higher-margin products. In recent years he’s jettisoned some of its more volatile, cyclical and commodity-like businesses. The question on the minds of Dow watchers now is, will that be enough for Third Point, the activist hedge fund run by activist investor Dan Loeb?

Exceeding Estimates

Third Point first emerged as a Dow shareholder in January last year and went on to advocate breaking up the company by separating its commodity-chemicals and plastics business. A threatened proxy fight was averted in November when Dow allowed two Loeb nominees on its board. The two sides also signed an agreement effectively muzzling either from disparaging the other publicly. Third Point is Dow’s sixth-largest investor with a stake worth $1.15 billion, according to data compiled by Bloomberg.

That standstill accord expires Dec. 13, a fact that may have motivated Liveris to announce so many shareholder-friendly moves on Thursday alongside Dow’s better-than-expected third-quarter results, said Jim Sheehan, an Atlanta-based analyst at Suntrust Robinson Humphrey Inc.

Plastics Record

"Some of the things they announced today I think were accelerated by the activism," Sheehan, who recommends holding the shares, said Thursday. "They are moving forward with ideas that were contributed by someone, probably Third Point."

The shares rose 5.1 percent on Thursday, and gained 2.2 percent to $50.84 at 8:57 a.m. before the start of regular trading in New York.

Dow has now beaten analysts’ estimates for its earnings every quarter since Third Point first reported its interest. The shares are up 9.4 percent this year through Thursday, while the Standard and Poor’s 500 Materials Index was 8.2 percent lower. The broader S&P 500 was almost unchanged.

Third Point could still pursue an agenda of pushing Dow to break itself up if Loeb believes petrochemicals continue to underperform, Sheehan said. However, on Thursday Dow posted record third-quarter earnings for its plastics unit, the company’s largest business, as margins expanded because of cheaper raw materials.

Corning Talks

A sale of Dow AgroSciences would be highly significant for Dow. Divestment of the unit, which sells genetically modified seeds and pesticides, could generate $11 billion for Dow, analysts at JPMorgan & Chase Co., said in a note Friday. The shrinking of one of the Kuwaiti venture stakes, meanwhile, will generate pretax proceeds of $1.5 billion, Dow said.

Liveris said Thursday there’s no imminent deal for Dow AgroSciences and he has no “big M&A” lined up. However, he also said his company is talking with Corning Inc. about buying the latter’s stake in Dow Corning, their 72-year-old silicones joint venture.

CEOs at the end of their tenures tend to be more interested in boosting shareholder value because they have a larger stake in the company and are trying to create a sustainable legacy, UBS’s Roberts said.

"Andrew Liveris planted his seeds a long time ago and now he’s in harvest mode," Roberts said. "Everyone wants a higher Dow Chemical stock price, probably no one more than Andrew."

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