HEDGE FUND TARGETS DOW ACTIVIST INVESTOR: Third Point wants
big chemical maker to split in two
A
HEDGE FUND run by billionaire investor Dan-
iel S. Loeb has purchased a large stake in Dow Chemical and wants the company, the largest chemical maker in the U.S., to break itself into separate commodities and specialties firms. The fund, Third Point, didn’t disclose the size of its stake, saying only that Dow is currently its largest investment. However, published reports value the fund’s interest in Dow at $1.3 billion. Loeb has lit fires under the feet of corporate executives before, most notably at Sony and Yahoo. Since its inception in 1996, Third Point has reported average annual returns of 18%. The hedge fund’s gripe against Dow is anemic performance. “In April 1999, nearly 15 years ago, an investor could have purchased Dow shares for the same price that they trade at today!” Third Point wrote to investors. “These results reflect a poor operational track record across multiple business segments, a history of under-delivering relative to management’s guidance and expectations, and the ill-timed acquisition of Rohm and Haas.” Andrew N. Liveris has been Dow’s CEO since late 2004. Third Point is particularly critical of Liveris’s strategy in petrochemicals, which Loeb asserts allows basic chemicals to “subsidize” businesses downstream. This strategy is “misaligned with the changed landscape” of low-cost raw materials from shale. Instead, the firm should be focused on reducing costs and fine-tuning operations, which, the hedge fund claims, can unlock billions in profits. Third Point is recommending that Dow explore
putting its petrochemical-oriented operations into a new company. These businesses generated $38.7 billion in revenues in 2012, 68% of Dow’s total sales. The remaining specialties company would consist largely of former Rohm and Haas assets and Dow AgroSciences. Dow is already moving its chlorine and derivatives operations into a separate company that would have about $5 billion in annual revenues. In 2009, Dow planned to exit petrochemicals by creating a joint Loeb venture with Petrochemical Industries Co. of Kuwait, but that deal fell through. SIDEWAYS Dow Chemical’s value lags In a statement, Dow behind the broader market over the long term. pledged to maintain an “open dialogue” Stock price index (January 2004 = 100) 180 with shareholders but 160 defended its strategy. 140 “We believe our investS&P 500 ments have yielded sus120 tainable value for our 100 shareholders and will 80 continue to in the near 60 and long term.” Dow Chemical 40 Charles Neivert, a 20 stock analyst with Cow0 en & Co., is intrigued 2004 05 06 07 08 09 10 11 12 13 14 by the idea of a split at NOTE: Index based on monthly closing prices of shares. Dow, but he thinks the Dividends are not included. SOURCES: C&EN, Yahoo Finance petrochemical business is the keeper. “Dow’s recurring attempts at transformation have resulted in a misallocation of resources over a long period of time, creating a situation where almost every segment substantially under-earns its potential,” Neivert wrote assessing Loeb’s plan. “We see the greatest earnings capture in its petrochemical business. Dow should sell everything else.” Shareholders seem receptive to Loeb’s idea. After news of the Third Point stake broke on Jan. 21, Dow Liveris shares climbed 6.6% to close at $45.93.—ALEX TULLO
HAZARDOUS MATERIALS Rail, oil industries weigh new safety measures in wake of derailments Top officials from the railroad and oil industries have agreed to take immediate steps to improve the safety of freight trains hauling crude oil after a spate of fiery crashes in recent months. Railroad companies will examine the feasibility of rerouting oil trains away from highly populated cities and analyze where trains can be slowed down to reduce the potential for derailments. Also, petroleum producers will share information with federal regulators on the content of crude coming out of
North Dakota’s booming Bakken oil field. The voluntary changes, which also include improving the safety of the crude oil tank car fleet, were announced after a meeting convened earlier this month by the Department of Transportation. “The nation’s railroads share the Administration’s sense of urgency and will collectively work to identify additional ways to make an already safe system even safer,” says Edward R. Hamberger, CEO of the Association of American Railroads (AAR), an industry trade group.
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JANUARY 27, 2014
Political pressure on the industry has been growing after a series of accidents involving oil train crashes, including the disaster at Lac-Mégantic in Quebec last July, in which 47 people were killed. Rail transport of crude has expanded rapidly in the U.S. as the shale boom has opened up new fields that do not have adequate pipeline connections to carry the additional production to refineries. Railroads hauled 400,000 carloads of crude oil in 2013, up from only 9,500 in 2008, according to AAR.—GLENN HESS
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