Hedge fund pays US$1.3 bn for major stake in Dow

US-based hedge fund Third Point has acquired a significant stake in chemical giant Dow Chemical. Third Point, which has US$14 billion in assets under management, has been reported to have paid US$1.3 billion for the stake. Founded by billionaire investor Dan Loeb, Third Point did not specify the number of shares it had purchased but it did it say that Dow is its biggest investment to date.

In a letter to investors, Loeb said that Dow has significantly underperformed the S&P 500 over the last decade and gave reasons such as the “ill-timed” acquisition of Rohm & Haas and lower-than-expected performance in the petrochemicals business. Loeb wants Dow to spin off its petrochemicals division to add more value for shareholders and to focus instead on high-margin and fast-growing businesses like agricultural science and electronics and functional materials businesses, as well as Dow Corning, a joint venture with Corning, which makes silicone-based adhesives, sealants and other products.

Loeb also said Dow’s current petrochemicals strategy may be “a significant drag on profitability” and urged Dow to consider splitting it from Dow's speciality chemicals business into a standalone company. The spin-off combined with a significant step-up in earnings could translate into future EBITDA in excess of US$9 billion within the petrochemical business on a standalone basis, he said.

Dow sold its PP licensing and catalysts business in October last year bringing in US$500 million. It is also planning to exit a major portion of its chlorine business that has been in operation for over 100 years. It had earlier stated it wanted to raise up to US$4 billion by divesting other businesses and is planning to spin off or sell about 40 manufacturing plants over the next two years as it moves away from cyclical commodity products. Proceeds from these transactions are expected to be used for boosting shareholder returns, reducing interest expenses and organic growth investments. Dow also said it reduced its debt by more than US$2 billion in 2013. The Midland-based company had US$13.73 billion in revenue in the quarter that ended end-September.

Dow, in response, said that it is aware of its owners’ positions in the company and is constantly reviewing its operations and strategies to boost shareholder value and enhance competitiveness.


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