Even as Dow Chemical (NYSE:DOW) agreed to follow through on one of the recommendations made by activist investor Daniel Loeb following his declaration last week that he had amassed a sizable $1.3 billion stake in the speciality chemicals maker, it couldn't help but tweak him a bit while also rejecting the thrust of his larger proposal to spinoff its petrochemical business.
The specialty chemicals company said it will triple its stock buyback program, which Loeb believed could be a defensible action to take following the separation of the petrochemical unit as an overall plan to enhance shareholder value. It then went further by saying it will raise it's quarterly dividend by 15%, to $0.37 per share, a measure that the hedge fund operator didn't ask for, but no doubt appreciates nonetheless. But when it comes to spinning off the petrochemical business, Dow drew the line in rejecting it, and even scoffed that anyone could even consider the company as a petchem company, because it's already exited more than $10 billion in commodities.
"We've actually done the divestment of what might have been called a petchem business, the traditional commodity businesses," said CEO Anthony Liveris on Dow's quarterly earnings conference call. And going further, he pointed out the buyback program and dividend hike weren't the result of any outside pressure, but rather was part of a process that the board "has been reviewing on an ongoing basis with particular focus over the last several quarters."
So, there you go, Daniel Loeb. You can't take credit for any of it. And for good measure, Liveris invoked the name of Warren Buffett as backing his decision to continue running the company as he has. In an interview with CNBC, Liveris said the Oracle told him: "Frankly, we think you've been running the company for the investors who will stay versus the investors who will leave. And frankly, keep doing that."
Buffett's Berkshire Hathaway (NYSE:BRK-B) bought $3 billion of preferred Dow stock in 2009, which it used to acquire Rohm & Haas.
Whether from outside pressure or internal decision making, the specialty chemicals industry is seeing more streamlining going on. DuPont (NYSE:DD) sold its performance coating unit in 2012 for $4.9 billion and, last year, announced the spinoff of its performance chemicals unit, having received input from another activist investor, Nelson Peltz, who had taken a $1.3 billion stake in the company.
Loeb contends that while separating the commodity and specialty chemicals businesses might increase costs, concentrating on more attractive growth businesses would give Dow a "valuation uplift from increased business focus and disclosure." Yet, some analysts disagree, believing that specialty chemicals alone no longer carries higher profit margins, and that a mix between them and commodities would serve investors better.
Dow's own margins have been growing at a sharp, steady clip for several years in a row, and in the latest quarter's results that it reported separately, it said fourth-quarter net income came in at $963 million, a big U-turn from the $716 million loss it recorded a year ago. But margins widened across the board, benefiting from low natural gas prices.
Loeb may not have gotten anything that he wanted, or even credit for it, but he can at least take solace that his big stake in Dow Chemical is now worth a heckuva lot more than when he purchased it.