Hedge fund gets stake in chemical firm
NEW YORK — Hedge fund Third Point LLC said Tuesday that it has acquired a significant stake in Dow Chemical and wants the company to spin off its petrochemicals division.
Michigan-based Dow Chemical Co., which employs 2,000 people in its Louisiana operations, saw its shares jump $2.86, or 6.6 percent, to $45.93 Tuesday. The stock has been trading around six-year highs.
Third Point says Dow is now its biggest investment but didn’t specify how many shares it had acquired other than to say it was a significant position. CNBC reported that Third Point paid $1.3 billion for the stake.
The hedge fund said Dow stock has performed poorly compared to other chemical stocks and the S&P 500 and said a spinoff of the petrochemicals business would deliver more value for shareholders. The fund took a more positive view of Dow’s agricultural science and electronics and functional materials businesses, as well as Dow Corning, a joint venture with Corning Inc. that makes silicone-based adhesives, sealants and other products.
Dow Chemical spokeswoman Rebecca Brantley said the company is aware of Third Point’s position. Brantley said Dow welcomes constructive input and wants to continue a dialogue with shareholders, and that the company constantly reviews its strategy. She said Dow’s investments have yielded value for shareholders and will continue to do so.
Dow sold its polypropylene licensing and catalysts business in October, including a plant in Norco, to W.R. Grace & Co. The business segment employed around 90 people worldwide, with roughly 20 of them in Norco.
The sale brought in $500 million, and Dow said it wanted to raise $3 billion to $4 billion by divesting other businesses.
In December Dow said it wanted to spin off or sell about 40 manufacturing plants in the next one to two years as it moves away from cyclical commodity products. Dow Chemical’s chlor-alkali and chlor-vinyl facilities in Plaquemine are among those 40 manufacturing plants. The company also said other Plaquemine facilities on the block include the chlorinated organics facility; the brine operations and select assets supporting it; and energy operations. The plants employ about 300 people, many of whom are expected to go to work for any acquirer.
Dow’s facility in Plaquemine has about 19 operating units and only about a third are affected by the company’s December decision, Louisiana Economic Develpopment Secretary Stephen Moret said at the time of the announcement. He also said that Dow’s smaller Grand Bayou operation in Assumption Parish might also be affected, but with no change in total employment anticipated.
Dow also said in December that it reduced its debt by more than $2 billion in 2013.
The Midland, Mich., company had $13.73 billion in revenue in the quarter that ended Sept. 30.
Third Point disclosed its investment and its views in a quarterly letter to investors that it posted on the Internet.
Over the past five years, Dow has sold non-core businesses with around $10 billion in revenue. Those deals included selling Morton Salt for $1.7 billion to German fertilizer company K+S; TRN Refinery in The Netherlands to Total S.A. for $800 million; the Styron division, which makes chemicals and plastics, to Bain Capital Partners for $1.6 billion; and the propylene business for $323 million to Braskem S.A., a Latin American petrochemical giant.
At the same time, Dow has shifted its focus to more lucrative businesses such as electronics, coatings, agriculture, infrastructure and transportation. In 2009, the company paid $16.5 billion for Philadelphia-based Rohm & Haas, which became the core of Dow’s.