Daniel Loeb‘s hedge fund Third Point has revealed in a statement taking a large stake in The Dow Chemical Company (NYSE:DOW). Also, the investor stated that it considers that the company has underperformed during the past years and that it requires an assessment of its petrochemical operations in order to determine if a spin-off of Dow’s petrochemical businesses would increase the shareholder value.
The position held by Third Point has not been disclosed in the statement posted today on Harvest, a web platform for investors.
In Loeb’s point of view, the separation of The Dow Chemical Company (NYSE:DOW)’s petrochemical businesses would speed up its transition to an only “spcialty chemicals” company, which would allow it to focus on some attractive end-markets such as agriculture, food, pharmaceuticals, and electronics. Also, the standalone petrochemical company, Dow Petchem Co. will move the strategy away from engaging into downstream migration towards overall profit maximization.
“The optimization of Dow Petchem Co. combined with the significant step-up in earnings from organic growth initiatives already put in place by management – the PDH plant, the Sadara JV, and the U.S. Gulf Coast greenfield ethylene cracker – could translate into future EBITDA well in excess of $9 billion on a stand-alone basis,” Third Point said.
The investor has taken into account the spin-off of upstream and downstream business into Dow Petchem, and that this action will increase the financial results from operational improvements at Dow Petchem and will also increase the valuation due to increased business focus.
“Finally, as Dow management looks to further its journey in unlocking value for shareholders, it now has the balance sheet flexibility to consider a meaningful share buyback that could more than offset the share issuance from the conversion of the Warren Buffett/KIA securities issued in conjunction with the financing of the Rohm & Haas acquisition.”
The Dow Chemical Company (NYSE:DOW) has issued $4.0 billion worth of 8.5% convertible preferred securities to Berkshire Hathaway and Kuwait Investment Authority, paying $340 million of annual non tax-deductible dividend.
Amid the news disclosed by Third Point regarding its stake in The Dow Chemical Company (NYSE:DOW), the stock of the company already gained over 5% in the morning trading.
Loeb is famous in the business world for taken some serious actions regarding other companies and putting them on the right track. Earlier, he held a significant stake in Yahoo! Inc. (NASDAQ:YHOO) and was directly involved into appointing Marrisa Meyer as the company’s CEO.