Shakeup At Dow

COMPANIES OFTEN euphemistically declare that a departing executive is leaving to "pursue other interests." But when Dow Chemical became convinced that two of its top executives were pursuing other interests while still on the payroll, the company stated bluntly that they were "terminated."

The Dow announcement, issued on April 12, accused J. Pedro Reinhard, director, adviser, and former chief financial officer, and Executive Vice President Romeo Kreinberg of "unauthorized discussions with third parties about the potential acquisition of the company." Chief Executive Officer Andrew N. Liveris said, "We are greatly saddened by the disrespect shown by our former colleagues."

The move came amid persistent rumors that private equity firms and foreign investors were preparing a takeover of the company. In January, Britain's Financial Times published speculation about a leveraged buyout of Dow. At the time, according to spokesman Chris Huntley, the company didn't pay much attention to the rumor. "Given the nature of the company—it's huge, it's global, there are a lot of things going on???we tend to live with those rumors," he says.

Then in February, a story in the London tabloid Sunday Express ran a piece on a $54 billion takeover bid for Dow that specifically named the private equity firms Blackstone Capital Partners, Carlyle Group, and Kohlberg, Kravis, Roberts (KKR). The next day, Dow's stock price jumped nearly 9% on the rumors before settling down to a 3% gain for the day.

Dow officials placed calls to the parties who were named in the story, and they dismissed it, Huntley says. Liveris scoffed at rumors appearing "on the third page of a third-rate newspaper in the U.K."

But on Sunday, April 8, a second story appeared in the Sunday Express claiming that a hostile takeover attempt was only "days away." Again, KKR was named, this time with investors from various Middle Eastern countries and J. P. Morgan Chase as the investment banker. Dow's stock price jumped 7% the Monday morning following the story.

With lightning striking for the third time, Dow made a more thorough investigation. It asked all executives high enough to be holding such talks if there was any truth to the rumors. Their response was no. And by Monday evening, the company issued a statement denying any buyout talks. In the statement, the company did take the opportunity to reiterate support for Liveris' "asset light" strategy of forming regional joint ventures for Dow's commodity chemicals and plastics businesses.

Dow also put out calls to the financial community, Huntley says. "We received a call back from an extremely reliable, highly credible source who was in a position to know precisely what was going on???that in fact, Pedro Reinhard and Romeo Kreinberg had been having conversations with a number of different parties in various locations over a period of several months concerning the potential acquisition of Dow Chemical," he tells C&EN. Huntley adds the alleged talks did involve foreign investors, financial institutions, and an investment bank.

Huntley won't disclose how Dow corroborated the story. But he does say the company possessed information that gave its management team "absolute confidence" and left its board with "no doubt that this was an activity that was unauthorized."

Both fired executives are longtime Dow employees. Reinhard was hired in Dow's Brazilian financial department in 1970, became finance director of Dow Europe in 1981, and began a nearly decade-long tenure as chief financial officer in 1996. He retired at the end of 2005.

Kreinberg joined Dow in 1977 after graduating from the National University of Architecture & City Planning of Buenos Aires. By 1990, he was regional commercial director for Germany, and in 2003, he was senior vice president of Dow's plastics business. Just last month, he was named one of the five Dow executives to serve on a newly created leadership committee.

Reinhard and Kreinberg have retained lawyers and deny wrongdoing. "My conscience is clear," Reinhard said in a statement. "I categorically deny that I have been part of any secret effort to take over or acquire Dow Chemical." Reinhard's public relations firm also denies his involvement in any discussions, secret or authorized, to sell the company. C&EN's calls to Kreinberg's law firm and home were not answered.

FINANCIAL ANALYSTS are trying to make sense of the palace intrigue. In a report to clients, J. P. Morgan chemical analyst Jeffrey J. Zekauskas said the recent events point to divisions in Dow's top management. He contrasts Liveris' conservative approach with others who support a more aggressive strategy. "Profound differences regarding the strategic direction and resource allocation probably led the two executives to pursue discussions separately," Zekauskas wrote.

Bank of America analyst Kevin W. McCarthy wrote in a recent report on Dow that taking over the company would be a challenging endeavor costing about $60 billion. One strategy for a purchaser would be to sell Dow's petrochemical operations before the expected commodity chemicals industry downturn in 2009. "Dow would be difficult, although not impossible, to break up given the highly integrated nature of production, particularly among derivatives of ethylene and chlorine," McCarthy wrote.

Time will tell if a hostile takeover for the largest U.S. chemical company is actually in the works. Even without a takeover drama, though, acrimony and accusations between Dow and the two fired executives are likely to keep the company in the spotlight for months to come.