Third Point, the hedge fund run by activist investor Daniel Loeb, has taken a significant shareholding in Dow Chemical and is urging the company to explore a spin off of its petrochemical business so it can concentrate on being a specialty chemicals firm.
Third Point revealed in a letter to investors dated January 21 that Dow is its biggest current investment. The hedge fund argued shareholders might be better served by the spin off and also urged Dow to consider a “meaningful” share buyback.
“Dow shares have woefully underperformed over the last decade, generating a return of 46% (including dividends) compared to a 199 per cent return for the S&P 500 Chemicals Index and a 101 per cent return for the S&P 500,” said the letter to Third Point investors.
“We believe that Dow would best serve shareholders' interests by engaging outside advisors to conduct a formal assessment of whether the current petrochemical operational strategy maximizes profits and if these businesses align with Dow's goal of transforming into a 'specialty' chemicals company.
“The review should explicitly explore whether separating Dow's petrochemical businesses via a spin-off would drive greater stakeholder value.”
Dow Chemical shares rose more than 6 per cent to $45.93. Dow is the second-biggest US chemicals company with a stock market value of roughly $55 billion. Analysts estimated that Third Point's stake in Dow is bigger than its $600 million-plus stake in Yahoo, and more than 1 per cent of Dow's stock.
In a statement, Dow Chemical responded: “We believe our investments have yielded sustainable value for our shareholders and will continue to in the near and long term.
“We constantly review our company at the management and board level to increase our shareholder value and competitiveness. We intend to continue an open dialogue to further enhance value for all of our shareholders.”
Loeb also revealed in the letter that Third Point has taken a stake in T-Mobile, seen as a potential merger partner with Sprint, and in Ally Financial, a former auto financing division of the General Motors group that is undergoing a restructuring.