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Daniel Loeb and Dow Chemical trade shots over CEO Andrew Liveris

December 14, 2015
Chemical Value Chain

Long-simmering hostility between Dow Chemical Co. and Daniel Loeb reached a boiling point over the weekend, with the shareholder activist calling for the removal of Chief Executive Andrew Liveris in the wake of the company’s agreement to merge with DuPont Co.

On Saturday, a day after Dow unveiled the tie-up, Mr. Loeb sent a private letter to the board raising questions about the deal’s timing. Mr. Loeb supports the merger, which would create an agriculture and chemical giant currently valued at more than $120 billion before breaking it up into three parts. Mr. Liveris is to be executive chairman of the combined company, while DuPont CEO Edward Breen is to maintain that title at the new group.

Mr. Loeb’s letter, reviewed by The Wall Street Journal, questions whether the deal was rushed to be completed before a so-called standstill agreement barring him from publicly speaking about Dow expired this weekend.

According to people familiar with the matter, Mr. Loeb believes unanswered questions about leadership, the board and the breakup signal the deal was rushed. He believes a second deal Dow announced Friday to take complete control of joint-venture Dow Corning raises similar questions, the people said.

Dow hit back hard. Directors, including one appointed to the board at the behest of Mr. Loeb’s Third Point LLC, defended the deal and Mr. Liveris in a series of interviews. They called the suggestion on timing “ridiculous” and “difficult to imagine.”

“Personally I think it’s almost laughable to say that anyone tried to engineer this date to the expiration of the standstill,” said Raymond Milchovich, one of the two directors Mr. Loeb had nominated a year ago. “There was never any rushing on the part of management or the boards of either company to skip steps along the way.”

In a statement, the company said the board was unanimous, including Third Point’s directors, in supporting the deal, calling it “a win for all of our shareholders.”

Mr. Loeb’s feud stands in contrast with the involvement in the merger of another activist, Nelson Peltz’s Trian Fund Management LP.

Trian itself was at odds with DuPont before the two sides in recent weeks came together to help plan the deal. But the significant role the activists have played in the recent history of both companies is the latest sign of how consequential such investors have become.

Mr. Loeb’s Third Point first built a roughly 2% stake in Dow nearly two years ago, calling in January 2014 for a breakup of the company. Dow, which had just announced a restructuring and asset sales it considered significant, rejected his split proposal but added urgency to plans to sell commodity-based and chlorine-products businesses and buy back shares.

In November 2014, Mr. Loeb readied a proxy fight and launched a website that included an attack video on Mr. Liveris’s tenure.

The sides quickly settled the fight, with Mr. Loeb nominating Mr. Milchovich and Robert S. “Steve” Miller to the board and Dow putting up two of its own candidates.

Mr. Loeb was barred from publicly commenting on or attacking Dow for a year, but privately has kept pressure on the board and Mr. Liveris, according to people familiar with the matter. Mr. Loeb has focused in particular on Mr. Liveris’s personal spending, questioning if shareholders are funding it. The company has previously disclosed Mr. Liveris had to pay the company back more than $719,000 after what it described as a routine audit committee investigation.

Jeff Fettig, the lead independent director of the board, reiterated Dow’s earlier comments on the matter in an interview Sunday, saying any questions about Mr. Liveris have been answered. He and the other directors defended the company’s results and the DuPont deal.

“The board has been unanimous about the Dow’s leadership team including management making this transaction,” Mr. Fettig said. “Candidly, it would be difficult to imagine any other reason we would conclude this deal other than we got our work done.”

A third director, Ruth Shaw, said the board believed Mr. Liveris was “essential” to the execution of the merger with DuPont. “Quite frankly, I think the question is can we keep him?” she said. The directors said the deal was the best option for shareholders.

Mr. Loeb privately threatened earlier this month to start a new campaign once he was free to do so, the people familiar with the matter said. He called the company’s shareholder returns “woeful” and called for a search committee to be formed to identify a new chief executive, the people said.

The merger between DuPont and Dow and the subsequent breakup plan appeared to address several of his concerns, including a separation of Dow’s businesses.

Mr. Liveris hinted publicly Friday that he was nearing retirement and described the deal as a “culmination.”

In a response to Mr. Loeb Sunday, the Dow board moved a step further, saying Mr. Liveris has been clear that “he does not contemplate serving” as CEO of the new material-sciences business that will emerge from the breakup.

“He should not have any role in the post-merger entity,” Mr. Loeb wrote of Mr. Liveris. Giving him the executive chairman title “is a slap and an insult to Dow shareholders,” he wrote.

By David Benoit

Source: Wall Street Journal

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