Dow's Survivor CEO Liveris Closes on Most Elusive Deal of AllBy , , and
A 39-year Dow veteran, he led company through financial crisis
Deal with DuPont comes 9 years after earlier merger proposal
There was the ill-timed merger that nearly sank Dow Chemical Co. with too much debt. Before that, there was the time two trusted lieutenants plotted in secret to sell the company. And more recently, there was unwanted attention from a notorious Wall Street activist.
Yet despite the tribulations faced by Dow over the past decade, its Chief Executive Officer Andrew Liveris has survived to finalize a deal that had eluded him for almost a decade.
Dow and DuPont said Friday they will merge in what will be the biggest ever deal in the chemicals industry. The transaction will make Liveris the executive chairman of the $130 billion combined company, which will eventually be split into three new businesses.
Liveris, a fast-talking Australian-born Dow lifer, has become the well-known public face of the company during his 11 years as CEO. He’s been a regular on business television, publicizing a succession of deals that have seen Dow gradually become more focused on higher-margin chemicals rather than more cyclical, commodity-like businesses such as plastics and chlorine.
Privately, however, Dow recognized the need for more radical change. Early in his time as CEO, Liveris said Friday in an interview, the Dow board saw that the company “was not going anywhere.” Its commodity divisions couldn’t compete with state-owned and subsidized rivals. One answer, the board thought, was to combine with its biggest U.S. rival.
Liveris first pitched the idea of a merger in 2006 when he spoke with former DuPont CEO Chad Holliday, but the proposal went nowhere. It came up again during the tenure of Holliday’s successor, Ellen Kullman. According to current DuPont boss Ed Breen, it was being discussed by the company’s board when he joined as director in February.
Breen studied the deal over the following months, he said. Then, in October, Kullman unexpectedly stepped down and Breen became the first CEO to be drawn from outside the founding Du Pont family and the executive suite. He got a call from Liveris on his first day in the job.
The overall structure of the deal, including synergies and how the businesses would fit together, was in place when final negotiations began in earnest last Friday in the New York offices of Dow legal adviser Weil Gotshal & Manges LLP, according to a person with knowledge of the situation. About 200 people participated in the talks, which ran through the weekend and into this week, said the person, who asked not to identified because the meetings were private.
“The personalities were in the way” before Kullman’s departure, John Roberts, an analyst at UBS Securities LLC, said in an interview. “Andrew is his own best activist, so he’s in his element.”
Liveris is no shrinking violet. In addition to his media appearances, the 61-year-old has advised President Barack Obama on manufacturing and authored a book on the same topic. He joined Midland, Michigan-based Dow in 1976 when he took a job as salesman in Australia. He would later work for Dow in Thailand, and then run its giant performance chemicals business before becoming CEO in 2012.
In 2006, Liveris flew into New Castle airport, just outside DuPont’s hometown of Wilmington, Delaware, to meet Holliday, according to a person familiar with the matter. Liveris handed him a letter that spelled out his merger proposal and they discussed the idea, according to the person, who asked not to be identified because the meeting was private. Holliday, reached by e-mail Thursday, declined to comment on the meeting.
That was both the first and last time the two would meet to discuss the deal, the person said. The next year, Dow would be distracted by an embarrassing scandal after two executives were fired. Both men later admitted participating in unauthorized discussions about a leveraged buyout of the company that would have been backed by Oman.
Prior to Friday’s merger, the biggest and boldest deal of Liveris’s career was the $15.7 billion acquisition of Rohm & Haas Co., which was completed in April 2009 as the global economy swooned in the aftermath of the financial crisis. The transaction almost sank Dow: committed to the deal, it was blindsided when Kuwait pulled out of joint venture that would have helped it finance the acquisition.
Liveris said at the time he didn’t include a clause in the merger agreement that would have let Dow out of the deal if the Kuwait venture failed, because no one had anticipated such a global financial collapse. Dow negotiated new terms with Rohm & Haas shareholders and got an extension on a bridge loan to get the deal done. It then sold assets to pay down debt.
In subsequent years, Liveris tried to reshape Dow into a producer of more-profitable products by selling off volatile, commodity-like businesses. The company’s quarterly earnings have beaten analysts’ estimates since the start of 2014. Dow posted record third-quarter profit in October as cheaper raw materials boosted margins. The shares gained 52 percent in the five years through Tuesday, the last close of trading before the deal talks were reported, while the S&P 500 Index rose 68 percent in the period.
Dow fell 2.8 percent to $53.37 in New York while DuPont dropped 5.1 percent to $70.44.
There have been some dark clouds for Liveris. A former fraud investigator for Dow sued the company last year, claiming she was fired after uncovering millions of dollars in company funds that the CEO allegedly spent improperly, including money funneled to a charity he co-founded and family trips to the Super Bowl, World Cup and an African safari. Dow said in February it “reached an amicable settlement” of the whistle-blower’s claims.
And also last year, Third Point LLC, a hedge fund founded by Daniel Loeb, started a campaign against the company for failing to meet financial targets and called for a breakup of Dow into a commodity-chemicals business and a plastics business. In November, Dow allowed Loeb to nominate two members to the board, averting a proxy fight, and the two sides agreed to refrain from disparaging each other publicly -- a standstill agreement that’s set to expire Sunday.
Amid the pressure from Loeb, Liveris would probably have seen what was going on over at DuPont. Trian Fund Management, another activist investor, took a stake and argued that the company should be broken up to save costs. Trian would go on to fight -- and lose -- a proxy contest. But despite that victory by CEO Kullman in May, Trian, co-founded by Nelson Peltz, remained a thorn in DuPont’s side. The company’s failure to deliver on earnings commitments led to her resignation, said Jim Sheehan, an analyst at Suntrust Robinson. Kullman couldn’t be reached for comment.
Trian said Friday it fully supports the merger, which is “a great outcome for all shareholders.” The investor said in a statement it participated in the merger talks and had input on the deal’s structure. Third Point declined to comment on the deal.
Breen, who started as DuPont CEO on Oct. 5, initially on an interim basis, is perhaps best known as the architect of the Tyco International Plc breakup. Just two weeks into his new role at DuPont, Breen told investors on a conference call that he was already looking at options for the company’s largest business, its seeds and crop chemicals unit. At Dow, with the clock running out on the standstill agreement with Third Point, Liveris said he too was looking at options for his company’s agriculture segment.
The merger agreement “is really what the activist investors of both companies ultimately wanted, which is to break up these companies into the component parts that have superior growth opportunities, and those that are more commodity, cyclical type of businesses,” Sheehan said by phone.
The Sunday after Breen took the phone call from Liveris, the two CEOs spent the afternoon at a restaurant in the Hyatt Regency in Princeton, New Jersey, discussing their respective visions.
“We talked about putting the companies totally together, not just” combining their agriculture divisions, Breen said. “We both were on the same wavelength.”
— With assistance by Matthew Monks
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