By David Benoit
MIDLAND, Mich. -- Andrew Liveris is days away from what was
supposed to be his crowning achievement: merging Dow Chemical Co.
with longtime rival DuPont Co.
But instead of celebrating his legacy, Mr. Liveris is fighting
for it. A quartet of well-known activist investors, including Third
Point LLC and Trian Fund Management LP, has lined up to challenge
the plans taking shape to break apart DowDuPont. The $150 billion
company is set to be created next month upon the deal's close.
The investors' unrest could spur an unprecedented, multipronged
attack on Mr. Liveris, who has led Dow Chemical for 13 years and
whom the activists view as a roadblock. An escalating dispute could
further complicate the daunting task of splitting up DowDuPont
within the 18-month timeline executives have set.
As the companies review the exact details of the breakup, these
investors are concerned that the final plan won't deviate much from
the original one outlined when the deal was announced in December
2015. Their main complaint: The materials company expected to
emerge from the breakup, the new version of Dow Chemical, looks too
much like the current Dow and needs to shrink.
Dow shareholder Third Point has publicly called for changes to
the original breakup plan. Fellow Dow holders Glenview Capital
Management LLC and Jana Partners LLC and DuPont investor Trian have
privately made their own cases, according to people familiar with
the matter.
A war on multiple fronts would be the clearest test yet of
whether activists' campaigns, brought to companies like General
Electric Co. and Kraft Foods Inc., can keep slimming down
companies. The outcome could shed light on whether corporate
defenders have regained ground in arguing that breadth of business
is needed to ensure stability and spur innovation and gains over
the long term.
A review of the original breakup plan -- which called for
DowDuPont to be broken up into three companies focused on
materials, agriculture and specialty chemicals -- was launched in
May and is expected to be completed before the deal closes. Dow
Chemical has said Mr. Liveris, 63 years old, will remain another
year as DowDuPont's executive chairman instead of retiring this
year as planned.
"The sole focus should be on creating the right number of
spinoff entities and stocking them with the right assets to
position each to create maximum long-term shareholder value, and
not on empire-building or ego-massaging by Mr. Liveris or anyone
else," Jana founder Barry Rosenstein said in an email.
In an interview from his office, Mr. Liveris called such
assumptions "BS." He said the next iteration of Dow Chemical will
be poised for growth and innovation.
"I've spent a decade rejiggering the company's portfolio for the
future, " he said. "I will tell you that I see nothing sacred in
the portfolio, ever."
Both Dow and DuPont say everything is on the table during the
breakup review, and people familiar with the matter say there are
likely to be changes to the original plan.
Without naming anyone, Mr. Liveris said "noisy" investors who
don't understand the chemicals business are trying to push him to
create value in a spreadsheet.
He said he wouldn't judge the review until it is finished but
added that any changes must take into account how employees would
be affected.
The business at the nexus of the dispute is Dow Corning, a
pioneer in silicones used in products from laundry detergent to
building insulation. Dow Chemical took full ownership of the
longtime joint venture with Corning Inc. in a separate deal
announced the same day as the DowDuPont merger.
The activist investors want Dow Corning's assets to go to the
specialty-products company carved out of DowDuPont, not the
materials firm.
The activists view the new Dow as a commodity company and think
more value would be created if silicones were grouped with other
high-margin and research-intensive businesses.
Dow Chemical executives have emphasized that Dow Corning fits
"hand-in-glove" with traditional chemicals. Executives say having
both silicones and commodity chemicals together has helped grow
sales. Dow Corning's earnings before interest, taxes, depreciation
and amortization have doubled since the takeover after years of
stagnant growth. Executives now expect silicones to generate $2
billion in additional Ebitda, double the original goal.
On top of that, researchers are experimenting with mixing
silicone with chemicals Dow has long manufactured, hoping to
discover new materials.
"From a customer perspective, we're in front of more people in
more geographies, and they can come to us with a problem and we can
find the solution," Chief Financial Officer Howard Ungerleider said
in an interview.
The original breakup plan can be revised if 11 members of the
DowDuPont board agree. The 16-member board is composed of eight
directors from each company.
Days after the review was announced in May, Third Point released
a proposal it said would add $20 billion in market value when
compared with the original plan. In its quarterly letter to
investors, Glenview said it largely backed Third Point's proposal
and raised the prospect of calling a special meeting to replace
directors. Trian and Jana have both privately pushed changes,
according to people familiar with the matter.
In one of its points in the proposal, Third Point estimated that
Dow Corning would be worth $20.4 billion based on current
valuations of specialty-chemical firms, compared with $11.9 billion
as part of a larger materials company.
Other activists say the materials company should focus on
commodity chemicals with low costs and little research, and
silicones would complicate that. Analysts and other investors also
have said the benefits to be gained by keeping Dow Corning within
Dow Chemical could be replicated if Dow Corning was placed in the
specialty-products company.
Third Point is among the biggest holders in Dow Chemical. Even
after selling some of its stake, it still owns $1 billion. It,
Glenview and Jana together hold 2.5%. Trian owns 1.1% of DuPont
after cutting its stake by more than half since the deal was
announced.
If other demands are met, the activists could be willing to come
to an agreement in which Dow Corning stays in the materials
company, people familiar with those investors say.
The activists say DuPont and its chief executive, Edward Breen,
appear more receptive to their ideas than Mr. Liveris is. Mr. Breen
told analysts last week the review aimed to "ensure maximum
shareholder value is created" and the work was being done as fast
as it could be.
Mr. Liveris says he is aligned with Mr. Breen and in close
contact, even briefly taking his call during an interview for this
article.
Write to David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
July 30, 2017 07:14 ET (11:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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