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Material Insights: Shareholder calls for Dow to spin off plastics

Dow Chemical is receiving some unwanted attention from an unhappy shareholder. Check our Material Insights video report for news on a proposal to split the company.

Published: January 27, 2014 3:43 pm ET
Updated: January 27, 2014 3:50 pm ET

Dow Chemical is receiving some unwanted attention from an unhappy shareholder. Check our Material Insights video report for news on a proposal to split the company.

On Jan. 21, Third Point LLC issued a scathing letter in which it criticized Dow's management for financial underperformance and urged that the company be split into two separate public companies.

Under the proposal, the first company would contain Dow's petrochemical businesses, including its massive operations in polyethylene as well as numerous specialty plastic resins and ethylene feedstock. These units currently generate more than half of the total sales at Midland, Mich.-based Dow. The second Dow company would include the firm's agricultural business and other specialty units.

Third Point is led by activist investor Daniel Loeb.

In its letter, New York-based Third Point said that Dow was its largest holding. Media reports put Third Point's stake at $1.3 billion.

In its letter, Third Point said Dow's shares have generated a lower return that some broad stock indexes have in the past decade. The firm also said that Dow's weak performance is surprising since North America's shale gas revolution has been a powerful tailwind for petrochemicals. Dow has announced major investments in PE and ethylene on the US Gulf Coast to capitalize on new supplies of natural gas in the region.

Dow did not respond directly to Third Point's comments, but officials said Dow constantly reviews its company at the management and board levels to increase shareholder value and competitiveness. The company added that Dow will continue an open dialogue to enhance value for all shareholders.

Market analyst Phil Karig said he was not surprised by Third Point's actions toward Dow. He explained that in spite of Dow's best efforts to migrate downstream and become a specialty chemicals company, the market remains unconvinced. Karig is managing director of the Mathelin Bay consulting firm in St. Louis.

Third Point's move caused Dow's stock price to increase almost 7 percent, to almost $46 per share, on Jan. 21. But by the end of the week the prices was back below $44.

Expansion at Penn Color

Increased sales throughout the midwestern United States have led materials maker Penn Color to increase production at its concentrates plant in Milton, Wis.

The Doylestown, Pa.-based firm added a new high-output, twin-screw extrusion line late last year. The 3-year-old site also added an additional pre-blending system, production-scale resin dryers, a lab-scale injection molding machine and an additional post-blending system.

The 52,000-square-foot Milton plant now has seven extrusion lines.

Huntsman adds polyetheramine capacity

More specialty resin capacity is on the way for Huntsman Corp. The firm – based in The Woodlands, Texas – announced on Jan. 23 that it will increase capacity by at least 15 percent for polyetheramine specialty resins at three sites worldwide. Huntsman will boost capacity via debottlenecking at plants in Texas, Wales and Singapore. The capacity additions are expected to be completed by May.

PEA resins improve the performance of epoxy systems that are used in industrial and decorative coatings, as well as in sports equipment such as tennis racquets, skis and hockey sticks.

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