By Antoine Gara and Nathan Vardi
In another stark example that we are living in the age of the activist investor, billionaire hedge fund manager Dan Loeb won his second big victory in as many days on Friday, obtaining two board seats at Dow Chemical.
Loeb, who runs Third Point, one of the biggest hedge funds that agitates for change at publicly-traded companies, recently released a web site and a kind of attack video, criticizing Dow and its CEO, Andrew Liveris, for breaking promises to shareholders. Third Point even created an advisory board of sorts that included AIG Chairman Robert “Steve” Miller and former Foster Wheeler CEO Raymond Milchovich. Those two executives have now been named to Dow’s board of directors. For its part, Dow will add US Bancorp CEO Richard Davis and former IBM CFO Mark Loughridge to the board as part of the deal with Loeb.
Loeb initially invested more than $1 billion to take a stake in Dow at the start of 2014, making the chemicals producer Third Point’s biggest single position, and said he wanted Dow to spin off its petrochemicals business. In a letter to his investors earlier this year, Loeb seemed to argue that Dow had missed fully capturing the ethane advantage that has bolstered U.S. chemicals companies like LyondellBasell that have been using cheap U.S. ethane as a feedstock.
Behind the scenes of Loeb’s public campaign, Dow and Third Point have been working to negotiate board changes that would avert a full blown proxy campaign and fight for board seats.
Earlier this year, Third Point approached Dow with the idea of appointing Miller and Milchovich to the company’s board. In those meetings, Dow pushed back with independent nominees of its own choosing.
A source close to the situation told Forbes it was U.S. Bancorp’s Davis and Loughridge, the former IBM CFO, whom Dow proposed to Third Point, an offer that Loeb initially rejected. After Dow’s investor day in mid-November, where the company announced sweeping change including a dividend boost, asset sales and a realignment of its business lines, Third Point then made its dissatisfaction with the situation public in its video.
Dow’s election of four independent nominees, two of Third Point’s choosing and two of the company’s choosing, appears to be a middle ground. The settlement may also reflect the progress Dow has made through 2014, as it has shed assets, increased capital returns to shareholders and made its operations more transparent.
Friday’s settlement puts a one-year standstill in place between Dow and Third Point.
Nevertheless, the public perception will be that Loeb is on a roll. Another company that has been under siege by Loeb all year, Sotheby’s, announced on Thursday that its longtime chief executive, William Ruprecht, would be heading for the exit door. Loeb, who claimed Sotheby’s was not modernizing its practices sufficiently in the art world, had already won board seats at the auction house earlier this year.
Shares of Dow opened up 2.7% higher and are now up by 19% in 2014. Loeb has been one of the more successful hedge fund managers in recent years, posting good returns that were far better than the average hedge fund manager. But 2014 has been tougher for him. Through October Third Point’s main hedge fund was up 4.2% and trailed the broader U.S. stock market.
