By: Frank Esposito
February 14, 2014
Breaking up Dow Chemical Co. into two separate firms would do nothing to improve Dow’s productivity or capital allocation, according to a recent internal evaluation.
The evaluation found that such a split “negatively impacted Dow’s value proposition which leverages scale, integration costs and technology benefits across multiple science-based, vertically integrated value chains,” Dow officials said in a Feb. 11 filing with the Securities Exchange Commission.
On Jan. 21, Dow investor Third Point LLC of New York criticized the firm for what it called “a poor operational track record” and “a history of under-delivering relative to management’s guidance and expectations.” Third Point also suggested that Dow’s petrochemical business — including its major polyethylene assets — be spun off into a separate public company.
Dow’s Feb. 11 filing does not mention Third Point by name, but it essentially disagrees with that firm’s suggestion.
“The strategic review outlined a series of actions to maximize Dow’s value, which the company has been implementing,” officials added in the filing. “Dow believes that the specific actions it has taken to transition Dow from a commodity-based model into a vertically integrated science Company focused on specialty materials, agriculture, and specialty plastics, is the right strategy to maximize value for all of our shareholders in the short and long term.”
Midland, Mich.-based Dow has announced plans to sell off several chlorine-related businesses, including epoxy resins and PVC feedstocks. The firm also is undertaking major investments in PE, ethylene and propylene on the U.S. Gulf Coast as a means of taking advantage of new-found supplies of natural gas throughout North America.