How to Carve Up DowDuPont? Four Activists Sharpen Their Knives

MIDLAND, Mich. -- Andrew Liveris is days away from what was supposed to be his crowning achievement: merging Dow Chemical Co. with longtime rival DuPont Co.

But instead of celebrating his legacy, Mr. Liveris is fighting for it. A quartet of well-known activist investors, including Third Point LLC and Trian Fund Management LP, has lined up to challenge the plans taking shape to break apart DowDuPont. The $150 billion company is set to be created next month upon the deal's close.

The investors' unrest could spur an unprecedented, multipronged attack on Mr. Liveris, who has led Dow Chemical for 13 years and whom the activists view as a roadblock. An escalating dispute could further complicate the daunting task of splitting up DowDuPont within the 18-month timeline executives have set.

As the companies review the exact details of the breakup, these investors are concerned that the final plan won't deviate much from the original one outlined when the deal was announced in December 2015. Their main complaint: The materials company expected to emerge from the breakup, the new version of Dow Chemical, looks too much like the current Dow and needs to shrink.

Dow shareholder Third Point has publicly called for changes to the original breakup plan. Fellow Dow holders Glenview Capital Management LLC and Jana Partners LLC and DuPont investor Trian have privately made their own cases, according to people familiar with the matter.

A war on multiple fronts would be the clearest test yet of whether activists' campaigns, brought to companies like General Electric Co. and Kraft Foods Inc., can keep slimming down companies. The outcome could shed light on whether corporate defenders have regained ground in arguing that breadth of business is needed to ensure stability and spur innovation and gains over the long term.

A review of the original breakup plan -- which called for DowDuPont to be broken up into three companies focused on materials, agriculture and specialty chemicals -- was launched in May and is expected to be completed before the deal closes. Dow Chemical has said Mr. Liveris, 63 years old, will remain another year as DowDuPont's executive chairman instead of retiring this year as planned.

"The sole focus should be on creating the right number of spinoff entities and stocking them with the right assets to position each to create maximum long-term shareholder value, and not on empire-building or ego-massaging by Mr. Liveris or anyone else," Jana founder Barry Rosenstein said in an email.

In an interview from his office, Mr. Liveris called such assumptions "BS." He said the next iteration of Dow Chemical will be poised for growth and innovation.

"I've spent a decade rejiggering the company's portfolio for the future, " he said. "I will tell you that I see nothing sacred in the portfolio, ever."

Both Dow and DuPont say everything is on the table during the breakup review, and people familiar with the matter say there are likely to be changes to the original plan.

Without naming anyone, Mr. Liveris said "noisy" investors who don't understand the chemicals business are trying to push him to create value in a spreadsheet.

He said he wouldn't judge the review until it is finished but added that any changes must take into account how employees would be affected.

The business at the nexus of the dispute is Dow Corning, a pioneer in silicones used in products from laundry detergent to building insulation. Dow Chemical took full ownership of the longtime joint venture with Corning Inc. in a separate deal announced the same day as the DowDuPont merger.

The activist investors want Dow Corning's assets to go to the specialty-products company carved out of DowDuPont, not the materials firm.

The activists view the new Dow as a commodity company and think more value would be created if silicones were grouped with other high-margin and research-intensive businesses.

Dow Chemical executives have emphasized that Dow Corning fits "hand-in-glove" with traditional chemicals. Executives say having both silicones and commodity chemicals together has helped grow sales. Dow Corning's earnings before interest, taxes, depreciation and amortization have doubled since the takeover after years of stagnant growth. Executives now expect silicones to generate $2 billion in additional Ebitda, double the original goal.

On top of that, researchers are experimenting with mixing silicone with chemicals Dow has long manufactured, hoping to discover new materials.

"From a customer perspective, we're in front of more people in more geographies, and they can come to us with a problem and we can find the solution," Chief Financial Officer Howard Ungerleider said in an interview.

The original breakup plan can be revised if 11 members of the DowDuPont board agree. The 16-member board is composed of eight directors from each company.

Days after the review was announced in May, Third Point released a proposal it said would add $20 billion in market value when compared with the original plan. In its quarterly letter to investors, Glenview said it largely backed Third Point's proposal and raised the prospect of calling a special meeting to replace directors. Trian and Jana have both privately pushed changes, according to people familiar with the matter.

In one of its points in the proposal, Third Point estimated that Dow Corning would be worth $20.4 billion based on current valuations of specialty-chemical firms, compared with $11.9 billion as part of a larger materials company.

Other activists say the materials company should focus on commodity chemicals with low costs and little research, and silicones would complicate that. Analysts and other investors also have said the benefits to be gained by keeping Dow Corning within Dow Chemical could be replicated if Dow Corning was placed in the specialty-products company.

Third Point is among the biggest holders in Dow Chemical. Even after selling some of its stake, it still owns $1 billion. It, Glenview and Jana together hold 2.5%. Trian owns 1.1% of DuPont after cutting its stake by more than half since the deal was announced.

If other demands are met, the activists could be willing to come to an agreement in which Dow Corning stays in the materials company, people familiar with those investors say.

The activists say DuPont and its chief executive, Edward Breen, appear more receptive to their ideas than Mr. Liveris is. Mr. Breen told analysts last week the review aimed to "ensure maximum shareholder value is created" and the work was being done as fast as it could be.

Mr. Liveris says he is aligned with Mr. Breen and in close contact, even briefly taking his call during an interview for this article.

Write to David Benoit at

(END) Dow Jones Newswires

July 30, 2017 07:14 ET (11:14 GMT)