The legal battle between Dow Chemical Co. and fired executives Romeo Kreinberg and J. Pedro Reinhard has begun.
Kreinberg is seeking $600 million for defamation and wrongful termination in a lawsuit filed May 8 in New York Supreme Court. Reinhard is asking for $75 million for libel and breach of contract in a May 8 lawsuit filed in U.S. District Court, Southern District of New York.
Midland, Mich.-based Dow, one of the world's largest plastics and chemicals makers, in turn has filed a suit in U.S. District Court, Eastern District of Michigan, seeking the return of $50.9 million in bonuses paid to the two men. That amount includes $30.9 million paid to Reinhard and $20 million to Kreinberg during the past three years.
The two Dow veterans - with a combined 67 years of service to the firm - were fired April 12 after being accused of ``unauthorized discussions with third parties about the potential acquisition of the company,'' according to a Dow news release.
The firings came days after a source - identified in Kreinberg's lawsuit as James Dimon, chief executive officer of financial powerhouse JP Morgan Chase & Co. - informed Dow Chairman and CEO Andrew Liveris of Kreinberg's and Reinhard's alleged actions. Several British news reports also indicated Dow would be acquired by North American private equity firms and Middle East investors.
Dow's lawsuit against Kreinberg and Reinhard refers to a weeklong retreat in July where Dow officials - including the two fired executives - designed a strategy to focus on higher-profit specialty products. The suit implies Kreinberg and Reinhard used that information to work against Dow.
``Armed with their knowledge of Dow's innermost secrets and latest plans, [Kreinberg and Reinhard] would launch themselves on a course of deception and betrayal,'' Dow's lawyers wrote.
The Dow suit also refers to an e-mail Kreinberg allegedly sent to an employee who reported to him, after the employee forwarded Kreinberg part of a British press story. Kreinberg's e-mail allegedly read, ``E se non e vero, e ben trovato,'' which is Italian for, ``Even if it's not true, it's a good story.''
Dow's suit does not identify either JP Morgan or Dimon, referring instead to an unidentified bank and ``the bank's CEO.'' Dow also contends it has ``no further financial obligations'' to Kreinberg or Reinhard.
Kreinberg's lawsuit claims he was singled out because Liveris viewed him as a threat.
``Kreinberg created and maintained many of Dow's largest and most lucrative customer relationships throughout Europe and the Middle East,'' Kreinberg's attorneys wrote. ``Despite this performance, or perhaps because of it, Liveris viewed Kreinberg as a threat.
``The loyalty Kreinberg garnered from his division, one of Dow's largest and most successful, coupled with Kreinberg's willingness to challenge the opinions held by his CEO, was anathema to Liveris and his management style.''
Kreinberg's lawsuit adds that Liveris sent him a letter March 23 threatening to fire him unless he adjusted his ``negative body language'' and ``attitude.''
At the time of the firing, Kreinberg, 56, was executive vice president of Dow's performance plastics and chemicals unit. He had spent a good part of his Dow career in the firm's polyethylene, polyurethane and polystyrene foam divisions. Sources have said Kreinberg and Liveris competed for a chief operating officer title Liveris received in 2003.
The 61-year-old Reinhard retired as Dow's chief financial officer in 2005, but remained on the board. On April 16, Dow announced it was reducing the size of its board from 12 to 11. Reinhard was not renominated at the firm's May 10 annual meeting.
In a parallel to the Kreinberg/Liveris scenario, sources said Reinhard was a candidate for the CEO position when Michael Parker was named to that role in 2000.
``I am deeply saddened that I have to file a lawsuit to clear my good name and restore my reputation against a company to which I devoted 37 years of loyal service,'' Reinhard said in a news release.
Reinhard's legal counsel, New York-based lawyer Gary Naftalis, said that ``when you injure someone's reputation and good name, the law holds you accountable.''
Based on shares held and on stock options, Reinhard is Dow's second-largest individual shareholder, while Kreinberg ranks third. The top individual shareholder is Liveris. Kreinberg and Reinhard could have benefited from a leveraged buyout for Dow by being involved in the ownership and management group of the new firm, sources said.
Dow posted 2006 sales of $49.1 billion. Though Dow's 2006 sales were up 6 percent vs. the year before, its profit fell from $4.5 billion to $3.7 billion. The firm derives about half of its annual sales from plastics-related businesses and is one of the world's largest producers of PE and PS.
In the first quarter of 2007, Dow's sales mark of $12.4 billion was the highest in the firm's 110-year history. Almost 52 percent of Dow's first-quarter sales came from plastics-related businesses. First-quarter sales in performance plastics were up about 1 percent vs. last year, while sales in basic plastics essentially were flat. Companywide sales were up about 3 percent.
First-quarter pretax profit in basic plastics, including PE, polypropylene and PS - was up almost 11 percent to $527 million, with PE in particular posting healthy sales gains. But pretax profit for performance plastics - including polycarbonate and PU - plunged almost 40 percent to $441 million.