NY hedge fund acquires large stake in Dow Chemical

30 Jan '14

2 min read

New York (NY) based hedge fund management firm Third Point has acquired a massive stake in the US multinational chemical corporation Dow Chemical, and is urging the company to consider severing its petrochemical business and focus on specialty materials.

The stake in Dow Chemical, although not revealed, is currently the largest investment made by the NY hedge fund firm led by Daniel Loeb, states the fourth quarter investor letter of 2013 released by Third Point.

The letter states Dow’s shares have woefully underperformed over the last decade generating a return of 46 percent, including dividends, and these results reflect a poor operational track record across multiple business segments, a history of under-delivering relative to management’s guidance and expectations.

According to Third Point, the company’s weak performance is even more surprising given that the North American shale gas revolution has been a powerful tailwind for Dow’s largest business exposure, which is petrochemicals.

The NY hedge fund management firm believes “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”, the letter states.

Dow Chemicals, based in Midland, Michigan, is the second-largest chemical manufacturer in the world by revenue, and as of February 2009, the third-largest chemical company in the world by market capitalization (after BASF and DuPont).

The company engages in manufacturing of various chemicals including polypropylene, acrylates, ethylene, polyolefins, polyethylene, as well as specialty chemicals, and other products.

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