Liveris defends US Dow after Loeb calls for petchem spin-off

HOUSTON (ICIS)–Dow Chemical CEO Andrew Liveris on Wednesday defended the company’s strategy of integrating its upstream businesses with its downstream specialty chemicals, following an earlier request by an activist investor to spin-off its petrochemical business.

Dan Loeb recently bought a $1.3bn stake in Dow through his hedge fund, Third Point.

In a note published on 21 January, Loeb called for the spin-off of Dow’s petrochemical business. In it, he said that Dow’s petrochemical business is subsidising the company’s specialty chemicals.

An independent petrochemical business could focus on increasing profits instead of integration, Loeb said.

At the same time, the spin-off would speed up Dow’s strategy of becoming a true specialty chemicals company, focusing on agriculture, food, pharmaceuticals and electronics end-markets, he said.

During Dow’s Q4 earnings conference call, Liveris defended his company’s strategy. Dow has shed much of its commodity businesses and it is in the process of carving out even more.

“It is almost impossible to think of Dow as a petrochemical company anymore because we have exited over $10bn of commodities,” Liveris said.

Dow’s focus is no longer converting hydrocarbons into commodity products that are sold into merchant markets, he said. Dow now converts these hydrocarbons into patent-protected products.

As proof, Liveris pointed to the company’s plastics business.

Already, Dow has shed its styrenics and polypropylene (PP) businesses. Dow is continuing this strategy with its carve-out of its commodity epoxy resins and chlorinated products.

Dow’s plastics business is now aligned with such high-value end markets as packaging, transportation and telecommunication, Liveris said. “No one else can mimic this Dow business.”

Many have compared Loeb’s call for a petrochemical spin-off to the failed K-Dow joint venture, which dates back to 2007. In it, Dow and Petrochemical Industries Co (PIC) of Kuwait would have created a plastics joint venture.

But Liveris said that much of the K-Dow scheme has already been achieved through divestments.

Meanwhile, separating Dow’s specialty businesses would not necessarily result in them gaining a higher valuation, Liveris said.

For Dow’s agricultural business, he stressed that most of it is chemistry driven, since crop protection is the segment’s biggest part. The biology portion, which includes seeds, traits and oils, is much smaller.

From upstream to downstream, Dow’s businesses are now aligned towards high-margin and high-growth sectors, Liveris said. Most of the company’s portfolio resides in these sectors.

“We understand where value is created and what needs to be done to upgrade our earnings,” Liveris said.

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