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Third Point, Dow Bury The Hatchet

Finance: Hedge fund’s supporters, plus two others, will join Dow’s board

by Alexander H. Tullo
December 1, 2014 | A version of this story appeared in Volume 92, Issue 48

Setting aside differences that were dividing shareholders, Dow Chemical and Third Point have agreed to a cease-fire.

Credit: Steve Marcus/REUTERS/Newscom
Daniel S. Loeb, head of hedge fund Third Point.
Credit: Steve Marcus/REUTERS/Newscom
Credit: UPPA/ZUMApress/Newscom
Andrew N. Liveris, CEO of Dow Chemical.
Credit: UPPA/ZUMApress/Newscom

Third Point, a hedge fund led by activist investor Daniel S. Loeb, had been using its 2.3% stake in Dow as a platform to advocate for change at the chemical maker. Complaining all year that high overhead drags Dow’s earnings below those of its peers, Third Point has maintained that Dow’s shareholders would be better served if the company broke up.

The conflict between the two companies came to a head late last month. Following Dow’s annual investor forum, designed to boost confidence in a strategy of integrating commodity chemicals with value-added specialties, Third Point went rogue. It launched a website criticizing Dow for making excuses about poor performance and featuring a slick, attack-ad-style video painting Dow CEO Andrew N. Liveris as an unresponsive leader.

Third Point also designated two executives—Robert S. Miller, nonexecutive chairman of the insurance firm American International Group, and Raymond J. Milchovich, former CEO of the engineering company Foster Wheeler—as prospective nominees for Dow’s board.

Under the cease-fire agreement, the two men will join Dow’s board, effective Jan. 1, 2015. Two other executives, presumably picked by Dow, will also join the board. One is Richard K. Davis, CEO of U.S. Bancorp; the other is Mark Loughridge, former chief financial officer of IBM. Liveris serves on the IBM board.

Third Point and Dow also have agreed to a standstill agreement, which will maintain the status quo between them for one year. In a sign of the thaw, Third Point has already taken the website down.

“These moves should quell the activism noise surrounding Dow shares (and hopefully stifle any more videomaking),” wrote Wells Fargo Securities stock analyst Frank J. Mitsch in a note to clients.

Writing after Third Point went in attack mode but before the détente, J.P. Morgan analyst Jeffrey J. Zekauskas observed that Dow’s divestment of nonstrategic businesses and buyback of shares shows that Liveris acknowledges some of the problems identified by Loeb. “Dow is taking steps to catalyze value in its own way and on its own terms,” he wrote.



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