Dow Denies Takeover Rumor, Fires Two Execs

DOW CHEMICAL fired two senior executives on April 12 after learning that they had been involved in unauthorized discussions with third parties about the potential acquisition of the company. The two are J. Pedro Reinhard, who retired as chief financial officer in October 2005 and has been serving as senior adviser and director, and Romeo Kreinberg, executive vice president for performance plastics and chemicals.

The terminations came just three days after a denial by Dow's management and board that a leveraged buyout is in the works. An article appearing in the April 8 edition of a British tabloid, the Sunday Express, maintained that an investment group, including Middle Eastern investors and the private equity firm Kohlberg Kravis Roberts, had secured $50 billion for a takeover bid.

According to Dow, Reinhard and Kreinberg engaged in highly inappropriate activities that violated the company's code of business conduct. "We are greatly saddened by the disrespect shown by our former colleagues," says CEO Andrew N. Liveris. "But we will move on to shape our future with an even greater resolve to execute our strategy and deliver value to our shareholders."

Amid the turmoil, Dow has advanced its asset-light strategy to find complementary partners to help reduce capital investment and increase earnings. It has agreed with Chevron Phillips Chemical to combine certain styrenics operations in North and South America to create an integrated venture that is better positioned to compete. By partnering with Chevron Phillips, Dow will improve its access to styrene feedstock, while the partners together will strengthen their regional presence and reduce costs.

Nevertheless, Merrill Lynch chemical analyst Don Carson points out that rumors of a buyout or other big transaction have whetted investors' appetites for a substantial, cash-generating change in Dow's portfolio; the deal with Chevron Phillips is not one of these, he says.