Rumors crashed into reality at Dow Chemical Co. on April 12, when the plastics and chemicals giant fired two longtime executives - including plastics veteran Romeo Kreinberg.
Kreinberg was let go by Midland, Mich.-based Dow - along with board member and former executive J. Pedro Reinhard - for what the firm described as ``business activity that was highly inappropriate and a clear violation of Dow's code of business conduct.''
Kreinberg and Reinhard ``were involved in unauthorized discussions with third parties about the potential acquisition of the company,'' Dow officials said in an April 12 news release.
``I think I speak for all employees when I say we are greatly saddened by the disrespect shown by our former colleagues,'' Dow Chairman and Chief Executive Officer Andrew Liveris said in the release.
In an April 13 phone interview, Dow spokesman Chris Huntley said actions taken by Kreinberg and Reinhard ``were not in the best interest of the company, but were done to further their own personal positions.''
In reports published by Bloomberg News and the Associated Press, Kreinberg denied any wrongdoing and said he was seeking legal counsel. Calls placed to Kreinberg's home in Midland were not returned in time for this story.
Kreinberg was in his 30th year with Dow, while Reinhard had been with the firm for 37 years. Just last month, Kreinberg was one of four Dow officials named to serve on a new executive leadership committee with Liveris.
Reinhard is Dow's second-largest individual shareholder - behind Liveris - with more than 530,000 shares, while Kreinberg ranks third with almost 460,000 shares. Huntley said those totals may include stock options. Based on recent prices, Reinhard's stake in Dow would be worth about $24 million, while Kreinberg's shares would be worth almost $21 million.
Dow - one of the world's largest plastics and chemicals firms with 2006 sales of $49.1 billion - has been the subject of takeover and spinoff rumors for several months. At various times, these rumors have involved Saudi Basic Industries Corp. (Sabic) of Riyadh, Saudi Arabia; Reliance Industries Ltd. of Mumbai, India; and New York private equity firms, including Kohlberg Kravis Roberts & Co. and Blackstone Group.
Dow was contacted early April 10 by ``an exceptionally reliable contact'' who informed the company of Kreinberg's and Reinhard's actions, Huntley said. An April 13 Wall Street Journal story identified that person as an employee of financial firm J.P. Morgan Chase & Co., but Huntley declined to confirm that information.
The April 10 call came a day after Dow issued a news release saying the firm ``has had no discussion about a leveraged buyout.''
Huntley said the firm took that somewhat unusual step after being the subject of public rumors for the third time in recent months. That occurred April 9 when a British news report mentioned a possible deal.
``The first time it happened, we said, `We're a big company, so people will talk about us,' '' Huntley said. ``The second time, we said, `Where is this coming from?' but there was no segment of truth to it.
``But by the third time, it had become disruptive to employees in a number of communities in which we operate, and it also was affecting our share price. Volatility in share price is not good for our long-term shareholders.''
The British press rumor sent Dow's per-share stock price up almost 5 percent to near $47 on April 9. During the next two days, it fell back to $45, but went back up to $46 on April 12 - when the firings were announced - and was near $45.90 in midday trading April 13. Dow stock began the year at around $40 per share.
Huntley declined to say specifically what information Kreinberg and Reinhard shared with parties interested in Dow, but he did say that meetings and conversations took place ``a number of times with a number of different parties at multiple locations.''
Huntley also declined to confirm part of the April 13 Wall Street Journal story that said investors contacted by Kreinberg and Reinhard were from the Middle Eastern nation of Oman.
Kreinberg, who was executive vice president of performance plastics and chemicals, has an extensive history with Dow's plastics unit, which generates about half of the firm's sales. Previous assignments had him working closely with Dow's polyethylene unit and with other commodity plastics.
Reinhard retired from his roles as Dow's chief financial officer and an executive vice president in late 2005, but is still a member of the board, which he joined in 1995. If he doesn't resign before Dow's annual meeting May 10, spokesman Huntley said company officials will ask that he not be re-elected. All 12 Dow directors are up for re-election at the meeting.
Huntley added that Dow had not been contacted by Kreinberg's legal counsel, but ``if that's the route [Kreinberg] chooses to take, we'll address it when it happens.''
Liveris and Dow management have been promoting an ``asset-light'' strategy for the company, in which it would leverage its high level of integration while pursuing joint ventures or other options for commodity products such as polypropylene and polystyrene.
The firm recently announced a joint venture with Chevron Phillips Chemical Co. LP for its styrenics business in the Americas. (See related story, Page 4.)
Dow employees have received ``an internal gag order'' about the takeover rumors, according to an industry contact who previously worked for the firm.
``These are still just rumors, but they've put the fear of God into their employees,'' the source said.
The source added that he did not think Dow would retain its value if parts of it were spun off or sold separately.
``Dow is one of the most integrated chemical companies in the world, and that's where its value is,'' he said.
``Dow's size makes it difficult to do any kind of deal for the whole company, but its pieces don't work as well independent of each other.''
In an April 12 note to investors, Bank of America Securities analyst Kevin McCarthy said Dow's level of willingness also could affect any deal for Dow.
``Complex petrochemical companies are difficult to acquire without management's consent, and it is clear that [Liveris] has not been inclined to explore a sale, although the company does have a fiduciary duty to maximize shareholder value if a hostile bid were made,'' McCarthy said.
Although Dow's 2006 sales were up 6 percent vs. the year before, its profit fell from $4.5 billion to $3.7 billion. Dow is one of the world's largest producers of polyethylene and polystyrene.
In North America, the firm ranks first in linear low and low density PE and PS, and fifth in high density PE, in terms of estimated annual sales.